So, today the market is pushing hard into the green. The DIJA is pushing another 200-point day, whereas yesterday, it dropped some 117 points. This huge of a swing is not uncommon these days. The volatility is, well, just a bit less than extreme (2008-2009, and the summer 2011 are the metric for extreme). But here is the interesting thing – the VIX, the measurement of volatility in the market is and has been steadily dropping. It now resides in the high-12 zone, which puts it in, well, less than volatile territory.

This tells me all this nonsense about the Fed and interest rates is now baked into the cake, so to speak. What we are seeing now is traders trading on the perception that any of this means anything in the long term for the market. This also tells me that the path to a more steady market is clearing, as this type of trading has a tendency to clear out the underbrush, to remove the landslide debris, to basically take out the insecurity and fear that causes this type of market behavior.

Here is another clue that the road ahead for the market is less cluttered with debris. Yesterday, when both the Dow and the S&P 500 dropped measurably, the Nasdaq Composite, the NASDAQ 100, and the Mid-cap 400 were all up. If investors are truly running for the hills, they ain’t buying into technology and mid-caps.

  • U.S. stocks rose on Friday, lifted by results from Nike and another climb in biotechs, as investors assessed the impact of a stronger dollar on corporate earnings.

And that buying continues today, especially as the US Dollar drops 2 points under 100. The US Dollar dropping is both good news and bad, which is to say, the position of the US Dollar is not a problem for the market either way in this environment.

If the US Dollar goes up, it makes oil cheaper, which is good for the global consumer, which is good for corporate profits, ultimately, even as it makes international profits weaken. If it drops, as we see today, it sparks the market because it portends higher international profits.

  • U.S. stocks and crude oil advanced on Friday, capping a week of big swings as the U.S. dollar fell, easing concerns about the impact of the currency’s recent strength on economic growth.

The takeaway from this data is that the back and forth, the upside-then-downside, and the generally unstable market is prone toward higher highs, as we are now seeing around the world.

  • European stocks rallied on Friday, with euro zone shares easily outperforming again as global investors bet that a weaker euro would boost the region’s economy and corporate earnings.
  • Japan’s Nikkei share average hit a fresh 15-year high on Friday in choppy trade and gained for a sixth week on expectations for better shareholder returns.
  • China stocks powered higher on Friday, posting their biggest weekly gain in three months and hitting fresh seven-year highs, as investors speculated that Beijing will soon unveil fresh stimulus measures to aid a flagging economy.

This is all good, for sure, but it does also require a cautionary perspective. When things go up so fast, it is wise to take a step back and watch more carefully. It is better to buy the dips than to jump on the fast moving train.

Yes, the market will even out over time, but the Fed will continue to play a role in volatility, even as the VIX drops. Traders and fraidy cats are still a part of the market, after all.

  • U.S. stocks are “hyper-overpriced” in part because the Federal Reserve has kept interest rates so low for so long, a newly retired Federal Reserve policymaker said on Friday.
  • “Are we vulnerable, in my personal opinion, to a significant equity market correction? I do believe we are,” Fisher said in a CNBC interview, his first since leaving the Fed this week.
  • The Fed will normalize monetary policy over time, and investors need to prepare for that.
  • “I could see a correction taking place of substantial magnitude,” he said, adding he believes the Fed should not ease policy in response.

So, even though I don’t agree that a huge setback is coming, I do agree the market will find its balance, somewhere between here and the future there, which means ups and downs. Oh, and do you see what I mean about the Fed still playing a role in the near term for the market? It can reach out even from the great beyond, the place where old Fed hawks fly to rest in peace.

Trade in the day; invest in your life …

Trader Ed

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