This morning as I listened to CNBC, one of their loudest and most obnoxious voices raised the specter of serious market volatility in September. He suggested that the Dow could experience 500-point moves on a daily basis (not swings, moves). One of his colleagues wondered why he thought this when the VIX right now is so low and the back months of the curve (future bets) do not point to this either. He responded, “You might think this a travesty, and you guys are not going to believe what I am going to say, but, I really have never looked at the VIX as a cure for cancer … It is a lagging, not a leading indicator.”
I found the exchange interesting for a number of reasons, not the least of which is the idea that September will bring the type of market volatility last seen in 2008 and 2009. The commentator explained rather loudly and obnoxiously that the coming US election blather (think Fed and Bernanke) combined with another failed attempt to put the EU debt crisis on a path to resolution are the reasons for his “prediction.”
I think we will see volatility, but not to the degree the pundit suggested. September is less than 10 days away and 30 days from that puts the market almost into October. Since the VIX is a future measurement of the market’s expectation of volatility over the next 30-day period, and it currently resides in 14-point territory, I respectfully disagree that the market will revisit the wild days of 2008 and 2009. Simply, in those dark days, the VIX hit a high near 80 and for months ranged between 40 and 60. Now, to reach those lofty heights again, we would need another economic/financial crisis of the proportion we saw in 2008 and 2009. Does any realist see that out there? Oh, and by the way, the VIX is a measurement of future activity in the market, which makes it a leading indicator. The commentator is right about one thing, though, the VIX is not a cure for cancer.
On a negative note, though, oil prices are also a leading indicator, and they are rising with the market. If it were not so close to the end of summer, I would be more worried. Nevertheless, rising gasoline prices do not help the US economic recovery.
Retail gasoline prices have gone up about 39 cents per gallon, or 12 percent, since hitting a low of $3.326 on July 2, according to AAA, OPIS and Wright Express. Kloza estimates that U.S. drivers are paying $149 million more each day for gas than in early July.
Although not an official market leading indicator, retail sales in the past quarter can be seen that way, especially if the company reporting is one such as the one below.
Shares of Urban Outfitters Inc. surged late Monday, after the apparel and accessories retailer’s quarterly results came in above Wall Street’s forecasts.
Another leading but not official indicator is the market itself. Back in those dark days of 2008, one could see the market trend changing beginning in the summer. Today, the market trend is changing as well, but this time it points to a building of confidence in Europe, China, and the US. It suggests the world is not as worried about the future as are the doom and gloom specialists.
Global stocks rallied to 3-1/2-month highs on Tuesday and the euro hit a seven-week peak against the U.S. dollar
Trade in the day; Invest in your life …
