Even though it is Monday, the market is up and going strong right from the start. Is today the dead-cat bounce predicted (not mine) after last Thursday’s rout? Is it the Ukraine secession vote on Sunday that has the market all fired up thinking the situation there is coming to a close? Maybe it is one or both, but my money is on the strong manufacturing data that came out this morning.
- The Federal Reserve reported that U.S. Industrial Production for the month of February was reported at +0.6%, which was above the consensus expectations for +0.1% and above last month’s reading of -0.2% (revised upward from -0.3%).
- Factory production in the U.S. rose in February by the most in six months, indicating the industry started to recover from severe winter weather. The 0.8 percent gain at manufacturers followed a revised 0.9 percent slump in the prior month that was the biggest since May 2009.
- The Empire Manufacturing Index – one of the more closely watched indicators due to it being a current report – was reported at +5.6 in March. This was above the consensus for a reading of +5.3 and above last month’s +4.5.
Back to the Ukraine … This situation is far from over and it still has the potential to rattle the market, even if today it appears the market likes the weekend news. The interesting thing is the “event” is bringing out the hilltop screamers. Marc Faber, of course, is now predicting a 30-40% drop in the market and Jeff Greenblatt is tagging right along.
- This one is big, and the takeaway to the whole thing might be a return of the Cold War.
Mr. Greenblatt suggests that current market/geopolitical conditions might parallel some powerful negative historical market/geopolitical events, such as WWI and WWII.
- This is 2014, and if history is any guide, we are far enough along in the recovery from the financial crisis to be concerned about the geopolitical situation. For those of you who don’t know, the San Francisco earthquake of 1906 precipitated the panic of 1907, and by 1914 (a mere seven years), the world was engaged in WWI. From the crash of 1929, the Japanese were very active early in the 1930s, and Hitler was on the move. On March 7, 1936, has he occupied the Rhineland not even seven years after the crash. We are five years from the bottom but 6.5 years off the 2007 high, so tempers are ripe for this kind of showdown.
Mr. Greenblatt also suggests that because the VIX is not showing any strong upward movement relative to the Ukraine crisis, this is a problem, something of an omen.
- … even as the VIX has turned up, the usual fear and trepidation is missing. Too many people still view the market as business as usual … the VIX coming into the new week … it’s as high as it’s been recently. Without fear, the potential is for it to get a lot higher.
The bottom line is whether today is a dead-cat bounce, an irrational lack of fear about the Ukraine/Russia event, or the positive manufacturing data, the market is strongly in the green, as of this writing. And the VIX? It is down some 2.3 points, resting in the 15.5 zone. If it heads for the 30 zone, which is where Mr. Greenblatt suggests it needs to go to properly reflect the reality for the geopolitical situation, then we can assume he is onto something.
For now, though, play the market as if it were not headed toward a crash. If you do this, keep in mind the following trite but true advice.
- There are many ways to make money in the markets. The whole point is to trade a method that turns profits by having high probability entry points that give the trader the odds of making money on trades.
Trade in the day; Invest in your life …
