The Good News – the market snapped the losing streak at only two weeks, with a modest gain last week.
The Bad News – that’s pretty much the only good news.
Economic Events
The retail sales for March and last week’s economic numbers were net-neutral. Stocks did well to finish the week with a gain and I expect the pessimists may have more to shout about shortly.
On the positive, retail sales numbers showed that consumers spent more in March. Unfortunately, that’s the only decisively ‘good’ news there was last week.
Otherwise, the news reports were uneventfully neutral.
From the negative side, the UK as well as the most of Europe are back in Recession (its official), existing home sales fell, continuing unemployment claims rose and prosperity generally looks under pressure. These will raise both concerns and possibly fears for the future.
Last week’s economic numbers weren’t compelling and explains why the market remained pretty neutral. If the coming week’s numbers aren’t better, it’s seems less likely that stocks will build on last week’s growth and further drops are become more expected.
Bigger concerns lie with expected Q1’s GDP growth estimates and the more positive recent forecasts are looking over-optimistic and could fall back, seeing revisions in excess of 10%. Order books are likely to have the typical knock-on effect, and durable orders are likely to fall, as well — not good for stock market valuations. I expect that this could see further revisions in consumer confidence.
Here’s hoping that we see improvements in the jobs figures but if this doesn’t happen the compounded effect of negativity will be dire.
I struggle to see where optimists can suggest opportunities lie.
Although, volatile markets create opportunities and I am well placed for a market drop giving me the opportunity for the market confusion to create buying opportunities – buy when others panic and out of favour sectors where some real returns may exist.
Stock Markets
It’s pretty clear that the market’s direction has changed. Both the 20-day moving average line and the 50-day moving average line are now pointed lower. While it’s certainly possible – and likely – we’ll see bullish days even while the trend is technically bearish, one or two bullish days doesn’t snap a bigger losing streak. Only a close above the 20-day line would suggest the overall trend had turned bullish again – I don’t expect this until the negative news has been priced into the markets.
Looking to the CBOE Volatility Index (VIX) (VXX) (VXZ) – we are waiting for a spike in the commonly called fear index from the lows we are currently experiencing. So clearly there is little downside potential but huge upside risk. So what does that mean in English – there are many reasons for the stock markets to drop and an increase in fear could see this drop but how much of a drop?
based on historical data – possibly a 9% drop but reality and common sense dictates that the drop may be more or les severe and will be influenced by sentiment and the economic data.
In fact, the VIX’s 20-day average is about to cross above its 50-day average line for the first time since late last year.
Things are definitely changing, and not for the better.
Remember every market cycle creates silver linings – and opportunities to profit. I think the next few weeks will be key.
My email address is :- welshmoneywiz@virginmedia.com, tel (office) 029 2020 1241
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