Market Outlook On Wednesday 19 September 2012

20 Sep

Last week started in typical pessimistic terms, this changed abruptly on Thursday when the ECB’s President Mario Draghi said the central bank would be willing to buy as much Eurozone Bad Debt as necessary to recapitalize the Union’s struggling banks. Stockmarkets soared on the news and continued to move higher on Friday.

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The question being – will it be enough to keep the market rising?  There is a good chance that this will help fuel the long-term recovery but in the near future volatility will be a factor of the investment markets’ landscape.

Economic Calendar

There’s little doubt as to last week’s economic focal point… employment (or nearer the lack of improvement).

The US unemployment rate dropped from 8.3% to 8.1%, which is better, but as expected a slow reduction. This is in-line with optimistic expectations but means the recovery is slow, unspectacular and muted.

The other piece of impressive (potentially) data were auto sales.  The U.S. saw an increase in August of 19.9% vehicles sold. If this moves from an exception to a trend (we will see the results over the next few months), this could bode well for 2013 – auto sales have been a good future indicator of retail sentiment but typically a lead indicator of 9 – 15 months.

Market outlook: Hammerson, Rexam, Centrica

Stock Market

The question everyone wants answered – did last week’s strength reignite the bigger uptrend? Some feel, the market is overbought, and we still haven’t seen what one could consider a healthy and expected pullback following the recent rises – this would set up a big move for the fourth quarter.  

Currently, I’m maintaining a modestly bearish view on things and say we could have more downside to go before ‘the’ current bottom has been made. That leads to the next question…. where will that bottom be?

For reference, the average recent-market corrective move is circa 9% from the peak (as, for example, happened earlier this year). I am aware that only with hindsight can we forecast the “bottom”. Personally, I believe it to be a wasted effort and prefer to focus on the performance relationship between asset classes and their propensity for profit and loss based on the current circumstances. Correctly combined, this will steer you towards holding assets when combined have the best chance to minimise losses and strong chances of realising profits.

CBOE Volatility Index

One other factor working against several indices right now – the upper 50-day Bollinger band has stepped in again as a ceiling.

Does anything change when you take a few steps back and look at the longer-term weekly chart? Not really.

There’s still room for the longer-term trend to keep rolling before hitting a major ceiling.  That’s probably going to be somewhere around where the six-month and 52-week Bollinger bands will likely be converged.  

Once again, the CBOE Volatility Index (VIX) (VXX) is back to oddly-low levels.  The market continue to drift higher even with the VIX this low, but it’s going to be unlikely to see a strong and prolonged market rally with the VIX at these low levels.

 

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