Jun 14, 2012 | Volume 10, Issue 6
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Big Volatility Is Back In Play
by Market Technologies

Since the fall of 2008, the market has struggled to hold onto stability. True, the market has come back strongly from the unfathomable depths of those dark days, but some of the movement recently is a reminder of the volatility that can come with a lack of stability, a lack of certainty. This past Monday's almost 400 point swing ... Continue Reading Below

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... from the opening bell is a clear reminder that the issues facing the market today are huge and until those issues are resolved, expect more of the same, at least through the summer.

Speaking of summer, we have yet to hear from the US politicians about several things - raising the debt ceiling, the automatic spending cuts that will take place at the end of this year, the expiration of the Bush-era tax cuts, the expiration of the 2% payroll-tax holiday, and the expiration of long-term unemployment benefits for some 250,000 recipients. Let's add one more thing to that mix, the political battle for the US presidency, the US House of Representatives, and the US Senate. Yes, this summer and fall promise to be wild, and the market will surely have something to say about all the political craziness.

Of course, it is possible that the US politicians will suddenly become rational and deal with the immense problems like adults. Not likely, but possible and wouldn't that be refreshing for a change? The market would surely not know how to deal with a political process that looked at the problems seriously and tried earnestly to find a way to resolution, a way that did not adhere strictly to political ideology, a way that actually worked in the best interests of the country.

Yet, even if the seemingly impossible happened in the US, Europe, China, India, and Iran still loom large in the global economic picture. The biggest of these issues is, of course, Europe, and the recent delivery of some $125 billion to Spain to recapitalize its banks is a reminder to everyone that this huge problem is far from solved. No one knows if this is the beginning or the end of Spain's banking problem, but if the US is any guide, it should be closer to the end than the beginning.

Remember back to 2009 when the US financial system teetered on the brink of collapse. At that time, the US mustered almost a trillion dollars to directly aid its banks. That bailout worked, but the larger point is that Spain, with its comparatively small banking system will not need anything close to a trillion dollars to stabilize its financial system. The market will ultimately like this, but in the meantime, the steady stream of news about Spain's sick banking system and its debt problems, as well as the debt problems of Italy, Greece, Ireland, and Portugal will bring more volatility back into play. Expect a hot summer with occasional thunderstorms - and maybe even a tornado or two.

China and India will add to the heat of summer, as both rather large economies are in the midst of slowing down. China is decelerating and India has stalled, but it looks as if it too will begin a slight deceleration. Their economic fate is tied to Europe, as is the fate of the US, so as Europe goes, so goes the global economy. Perhaps the declining energy and food prices around the world will provide a consumer jolt to all economies, especially Europe, but even if that happens, it just might not be enough to avoid the drag of Europe on the global economy. And with a potential oil embargo on Iran this July, the idea of cheap energy could fly right out the window.

The current global political and economic situation points to a summer of market discontent, which means more volatility. As traders and investors, volatility brings both near- and far-term opportunities. Traders can trade the swings and investors can buy the dips for long-term gain. This is the beauty of VantagePoint. In a volatile environment, it finds near-term opportunities for both traders and investors by focusing on the global interconnectedness of the world economy and financial markets.

Best Wishes,

Lou Mendelsohn

 

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About the Author

Founded in 1979 by Louis B. Mendelsohn, the prominent technical analyst and trading software pioneer, Market Technologies Corporation was the first trading software developer in the financial industry to provide strategy back testing capabilities in trading software for personal computers with its introduction of ProfitTaker Futures Trading software in 1983. The result was the emergence of a multi-million dollar trading software industry based upon Mr. Mendelsohn's trading software and technical analysis concepts.

Today, with up to 86% accuracy*, VantagePoint Trading Software gives you the edge you need when trading Futures, Commodities, Forex, Stocks and ETFs. The VantagePoint forecasted indicators can be used to develop trading strategies that suit your personal trading requirements.



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