You can never take things at face value.
Contrary to assumptions being made just a couple of weeks ago after a nasty tumble for stocks, the market rallied strongly last week and managed to recover losses from the previous month. The markets are still seriously lower than values from the end of April/beginning of May.
So what does this mean? I think it is a bit early to tell if this is the start of a bull run or just a pause before further market contractions. Remember, currently trading volumes are poor and have been quite low the last few weeks. Next week’s move could be lower just as easily as higher.
Personally, I think the current market sentiment is pointing towards being bullish, so we’ll assume a positive bias until we have a reason not to.
Economic Calendar
Factory orders (for April) as well as productivity (for Q1) were also both down. This is something we need to watch for now.
Wednesday
- Retail sales for May are expected to be anemic. With such low expectations, even slightly good news could lead to a nice move higher.
- May producer inflation figures. The pros think we’ll see inflation will fall by 0.7%, but on a core basis (excluding energy and food), it should actually rise by 0.2%
Thursday
- Consumer inflation numbers. Again expecting tepid results.
Friday
- May’s Industrial Productivity and Capacity Utilization numbers – again expected to be nondescript. These numbers are critically telling of the market’s (and economy’s) overall health i.e. as long as they’re rising, things are ok.
There’s a serious concern that the current slow-down is a precursor to full-blown contraction.
Stock Markets
OK, the FTSE 100 gained +3.3% since June 1 to close at 5432.37. The question is, of course, is there more bullishness in the cards, or was last week just the result of some extreme volatility?
It’s still too early to say with any meaningful confidence. Unpredictable swings HAVE been the norm for a while, so it wouldn’t be unreasonable to expect the bears to push back now . In the grand scheme of things though, the bulls have the edge, so we’ll adopt the “trend is your friend” approach until we have a clear reason not to.
VIX Index
All that being said, there’s a nagging reason why it’s possible the bears have some unfinished business to take care of. See the CBOE Volatility Index (VIX). Though it moved lower last week as the market moved higher, its key floors are still under it, at 20.0. The VIX will need to start pushing under those lines and start a new down-trend if the market rally is to have any longevity.
The VIX hasn’t even come close to reaching the peak levels around 48 that brought about ‘the’ bottoms from 2010 and 2011. That’s not to say that the summer of 2012 has to be a copy of prior years’ summers, but one has to assume a pattern will continue repeating itself until it’s clear that it won’t.
Yet, it’s the same weekly chart with which the bulls could argue the 200-day average line as well as the lower 20-week Bollinger band did their job by acting as a floor over the past two weeks, sparking a rebound.
And therein lies the rub…. both sides of the table have decent arguments.
Given all we see here right now, we’ll side with the bulls for now and assume the market still has a fighting chance.
Remember, when investing, be careful but not too careful – and happy investing
My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, linkedin welshmoneywiz, twitter Darren Nathan
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