Earlier this morning, on this grey cloudy day, the market seemed unhappy. It looks to be feeling a bit better now, oh 90 minutes in, but it might not stay that way. There is a new fear coming our way, something never seen before, at least not in 300 years or so.
- A week ago everybody assumed voters would say “No” in overwhelming numbers and the issue of Scottish devolution from Great Britain would just quietly fade away.
Scotland has been part of the United Kingdom for over three-hundred years and for it to up and quit now would be, well, a major economic blow to the third largest economy in Europe and the sixth largest in the world. Yes, that would be England, and right now, it does not look good for the once-great colonial power.
- The most recent polls show the “Yes” side is leading with about 50% support. That has been enough to put the British government into full-on panic mode.
The British pound is feeling the fear today, and for good reason. Scotland is a tiny country, with a small, agrarian economy, for the most part, so losing that would not be a major blow to England’s economy. What would be a problem, though, is losing access to the North Sea’s oil reserves, an economic loss to be sure.
- There are warnings of dire consequences if Scotland leaves – not the least of which would be a change in ownership from Britain to Scotland of about 90% the North Sea oil resources.
No one knows what will happen economically if England loses this fight, but that country will change and it has been an economic influence in Europe for a long, long time. September 18th we will know how this plays out, but until then, I suspect the breathless media will keep us posted on the latest and most dire news.
It appears the market might not care, at least today, about the happenings in the devolving British Empire. It is clawing back toward the green. That would be the Dow and the S&P 500 trying to get back to the green. The NASDAQ and the NASDAQ 100 have been in the green all morning, In fact, if you look at the last three months, the two indices have been on an upward trend.
True, the S&P and the Dow have been up as well in that time frame, but the overall difference is the volatility. Both the Dow and S&P have experienced swings from red to green and back again, but the thing I have seen is that technology stocks have missed these swings, mostly. They have been steadier and more forceful in their upward climb.
Today is an example, and, if I might, I would like to add the Russell 2000 to my point. If you recall just about three months ago, the sell-off of the small-cap index and the collapse of the high flying technology stocks (mo-mo or momentum stocks) was quite the story. The breathless media was all atwitter about the divergence of the small caps from the big caps. Of course, this divergence brought out the celebrity analysts who tend to lean toward the apocalypse and the sell-off continued.
Well, it appears the divergence is shifting back toward convergence. Over the last month, the small-cap and technology indices mentioned above are tracking the Dow and S&P precisely. Both have risen along with the two big guys.
What does this mean? In my view, it means, the market is coming back to a firm footing, setting up for its next leg up. When money flows toward technology and small caps, it generally means investors are looking for more risk, and that frame-of-mind usually means the overall market trends higher.
Right now, all the indices are battling for the green. The Russell 2000 has dipped into the red and the technology indices are just above water. Let’s keep an eye of this correlation. It might be a key to making some money.
Trade in the day; invest in your life …
