Stock Market Volatility Indicator Technical Analysis February 2015:
The stock market is showing some signs of short-term consolidation and market participants may be looking to increase cash holdings. The momentum stocks on most people’s watch lists aren’t reaching new highs (except for Apple) and after the Fed meeting last week, stocks ended the month with a loss.
Will the Dow hit 20,000 this year as Dr. Siegel suggests? It seems unlikely to me that this could occur in the next 6 months if current trends continue. I expect to see the 2nd largest wealth transfer shift in history if oil prices continue to nosedive. The recent rally of 8 percent shows the transparency of heightened volatility in the mature stages of a decline.
January saw the S&P 500 decline nearly 3 percent and the closely watched financials fell more than 2 times that amount by 6.96 percent. Global monetary policy from Switzerland to Russia and China’s recent economic decline (which I told readers to look out for – a forecast that would have been wrong for the last 20 years) have caused some concern for holding long equity positions that is benefiting U.S. bonds.
This wasn’t a month for excessive trading and bullish setups for the major averages fell victim to volatile spikes. But wait a second, I thought the VIX was broken? For the most part people stopped tracking it and began to call it a ‘useless/broken indicator’. That may have changed considerably as volatility rose sharply Friday to end the week.
At a wedding recently, I spoke to one of my good old buddies who works in the finance industry and after telling him how well I did this year trading the XLF and Facebook he told me he wasn’t having so much fun. He said, “I don’t care which way the market goes, I need volatility.”
Because I was trading long positions I believe I responded that I hoped he and his firm went out of business and that the rally would keep going. The current increase in volatility is suggestive of market participants unwilling to hold shares – with vigor. This means price spikes and gaps may become more frequent in the intermediate run.
The Economic Picture February 2015:
Global headwinds may be more important than the local economic climate. The U.S. economy is moving from sluggish growth to repair mode and there are more deflationary risks than in the last few years. I’m not seeing the revisions to forecasts based on the sharp decline in oil and the enormous shift of wealth that is slated to occur. This will also adversely impact some credit/financial engineering related to oil/projects that has yet to come to the fore.
Cash is king in the current environment and this may not be as simple as – “well – January of 2014 was a bad month t00 but the year ended up just fine”…. No.. we’ve now had two consecutive months of declines and the January 2014 decline may have been an inflection point as 2014’s gains were much less than 2013. Currently, I expect 2015 to not to be a better year than 2014 with gains in the single digits for the first six months at best.