If one were to ascribe a mental-health label to it based on its recent behavior, well, schizophrenic would be defensible. Again, the market took us on another wild ride yesterday. Now, the prognoses for recovery, or not, are all over the board.
- Despite making big moves to the downside during the session, stocks rebounded to close flat on Thursday. Equities edged higher in late afternoon trading as small caps rose higher after this week’s sharp losses.
And there is a key to understanding the future mental health of the market – small caps. The fact that investors are jumping back into small caps tells me two things 1) some level of risk taking is back and 2) the “buy the dip” mentality is still at play in the market.
Consider as well, the VIX is down some 8.5% today, which puts it back in the 14 zone, well away from the 21.5 ceiling I mentioned earlier this week. Oh! And gold is done as well. It has dropped below 1200 for the first time since last December. I have a bit more on this in a moment, but for now let me say both the VIX and gold dropping tells me the prognosis for near-term market health is good with a chance for a full recovery by the end of the year.
Did I use the word schizophrenic relative to the market earlier? Yes, I believe I did, and rightfully so. For all the talk about the Fed fear, you know, the Fed ending its bond-buying program this month and then having the audacity to suggest it will push interest rates higher early next year, the market is not behaving as it should today. One would think with the economic news that came out today, the market would be crashing, and crashing hard.
- The Department of Labor released payrolls data for September, which came in at 248,000 jobs added – a healthy dose higher than the expected 215,000. The unemployment rate dropped to 5.9 percent. August was revised up to 180,000 from 142,000.
- The U.S. trade gap unexpectedly narrowed in August to its smallest level in seven months on an increase in exports, supporting views of sturdy economic growth in the third quarter.
The above two pieces of data will likely convince the Fed that raising rates sooner rather than later is a good idea. Now, to those who argue the Fed Fear Factor, how do you explain today’s market move? Schizophrenia, I guess.
Speaking of crossways thinking, I have read a number of articles recently about the downward trend in oil prices. In summary, there are two primary reasons oil prices are dropping – oversupply and lack of demand.
Sure, China’s slowing growth, Europe’s economic struggles, US oil production booming, and black-market oil all contribute , but the bottom line is there is a global oil glut and it ain’t going away. US producers are not going to cut back, In fact, they will go after even more oil, especially if the ban on US oil exports is lifted,
As well, energy-efficient cars are becoming more popular and more efficient. Simply oil usage is declining and supply is increasing and there is no sign the other oil producers are willing to cut back because of this. In fact, check this out.
- Saudi Arabia put barrels on sale! Just as if you owned a store and you could not move enough inventory the best thing to do is to have a sale.
So, here it is – light sweet crude is below $90, Brent crude is close at $91 (pretty small gap), and the futures price of gasoline is acting like lead. The RBOB is down from the $2.70 -$2.75 range of just five days ago to $2.35 today. This is good news for the consumers of the world and bad news for the perma-bears still calling for the market crash.
- The recent pullback closely resembles the dips that we saw in April and August. If the S&P 500 finds support and starts to rally into the close of this week, this analysis suggests that the current level may represent a favorable level to join the established uptrend.
Now, add to the above, the market behavior in February, and its behavior in the previous four years before that. Actually, when one compares the recent market behavior to that of the recent past, it does not seem so weird, or schizophrenic. One could describe the market as having developed a personality disorder over the last five years or so, which is understandable. After all, the market did suffer serious trauma in the fall of 2008 that lasted through the winter and into the spring of 2009.
Okay, I said I would talk a bit more about gold, but I ran out of space this morning, so on Monday, I will point out some interesting things about the price of gold and it relevance to the health of the market.
Trade in the day; invest in your life …
