Watching the first 30 minutes of the market open today was like watching ants scurry back and forth across a kitchen counter full of crumbs. Back and forth, the market could not decide if it wanted to go up or down, but if you ask me, the bear ants seemed to hold the straighter line. Proportionately speaking, the ticker saw more red than green. Sooner or sooner-later, though, the bears will run out of enough ants to keep the back and forth going, as the pressure to get on the buy side is mounting.
Since its recent bottom in early October, the S&P index has jumped 30 percent. But for the first time since 2007, investors are not using the gains as an opportunity to take profits and run away. Instead, the rally has been slow and steady, and investors see the sustained improvement in the U.S. economy as a sign that demand has returned and that risky assets can support higher valuations.
The above is certainly just one point of view, even if it reflects my point of view. Others see things differently.
The advance we’ve had so far this year is not sustainable, and the market is taking a little breather,” said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. The market could easily come down 3 to 5 percent and still be within the context of an improving economy and continue to work higher, he said.
Reading the above, I get the sense that Mr. Morris is hedging just a bit. Sure enough, and I understand it, but the reality is as the US economic data keeps going in the right direction, it becomes more and more difficult for investors to remain out of the game. They will watch now for the “pullback” to bottom, or drop a certain percentage, and then they will come in. Mind you, their eye seems primarily focused on the US, but Europe is looking a bit more attractive these days, as it has fallen from the headline news category. Quietly the massive economy is reforming itself to something more credible, something that is gaining the attention of the droves that left Europe in those boggy days of bad, bad, bad.
The euro zone’s general stability is reflected in currency options as well. Implied volatility has fallen to levels not seen since before the euro zone debt crisis, in large part because heavily indebted Greece finally agreed to a bailout plan and debt restructuring and the European Central Bank offered short-term loans to the region’s banks.
Greece might seem a silly indicator, as, after all, its economy is less than the size of many US states, but as a symbol of past and current EU problems, there is none better. Of larger importance, though, are the actions of the ECB and the pressure from the EU on negligent countries. I can assure you, the machinations behind the scenes of pushing the countries of the EU to stay on the path of reformation are powerful. Because the breathless media isn’t throwing red meat to the lions, the EU and the ECB can do their thing in relative obscurity, free from the politics of mass hysteria and pandering.
So, despite what the market is doing today and, perhaps, what it does in the next few days, keep your eye focused on the opportunity to get in, as, eventually, the bears will simply not have enough ants to force the schizophrenic back and forth scurrying we have seen of late.
Trade in the day – Invest in your life …
