As the second quarter came to a close yesterday volatility is no where to be found. The CBOE Market Volatility Index also referred to as the VIX has been pretty much dormant this entire year (chart). Typically vol ticks up as we approach summer for a variety of reasons such as earnings reporting season, seasonality and of course the Federal Reserve policy actions. As expected the Fed did raise rates in June but the markets appear to be pricing in a higher interest rate environment. So far this year the Dow Jones Industrial Average (chart) is up 8.03%, the S&P 500 (chart) is up 8.24%, the Nasdaq Composite (chart) is up a whopping 14% and the small-cap Russell 2000 (chart) is up a modest 4.29%.
Seemingly everyday stocks are in melt-up mode. There are days where volatility tries to rear its head up, but that does not last very long. (See chart below). Even when Goldman Sachs came out with a bearish report on June 9th comparing the red-hot tech sector to the internet bubble era, the negative effect of that report lasted only a couple of days before tech found support and then proceeded to make new highs. The traders and investors that are waiting for the proverbial 10% or more correction are just not getting it. Buying the pullbacks is what has been working ever since the election but the problem is that if you are not stepping in on the 1-3% percent retracements, you are missing the next leg up. How much longer can this type of market environment last? Now that Q2 is in the books, earnings reporting season will soon begin. Let’s see if corporate earnings continue to come in stronger than analyst expectations and if so, stocks may just continue to remain bulletproof.
A quick gander at the technical shape of the aforementioned indexes and there are no signs of overbought or oversold conditions according the relative strength index. Therefore I am expecting vol to remain relatively low until at least second quarter earnings season begins. Good luck to all!
Both Paula and I wish everyone a very safe and happy Fourth of July holiday weekend 🙂