Marching into the Madness

March. My favorite time of year. Flowers blooming, weather getting warmer, daylight savings time and the best event in sports – the NCAA basketball tourney (March Madness – time to fill out those brackets!).

The thrills, chills, excitement and buzzer beaters are unparalleled through the two week tournament. I also love the action in markets this time of year. March has brought us conflicting results.

In 2009 there was a dramatic fall to 666 on the SPX, the huge bottom that continues to spur more upside just three years later. In 2007 we saw the demise of Bear Stearns that started the markets on a charted course to a near disaster.

In 2000, March started the decline of the “dot.com” era as the excesses were quickly removed (and your face ripped off if you were long).

Recently, I put together an article on the Russell 2K wondering why all the worry. The index has not kept pace with the bigger cap indices but it certainly outperformed in Dec/Jan. What’s wrong with a little give-back before pushing higher?

The ball is still in the bulls’ court until the trend changes. The recent earnings season was strong and showed the economy is chugging along. Chinks in the armor? Sure, there will always be something to complain about but the data this past week gave us a good look into how this current quarter is shaping up.

At first glance it appears the recent trend of moderate growth with little/no inflation will continue on into April. The worries that may have been inferred by Chairman Bernanke this past week are nothing more than we have been hearing about for the past year.

We have even heard some Fed Governors think the economy is/will grow to fast under high inflationary conditions (hmm, what data are they looking at?). Until the jobs situation improves dramatically then expect Fed accommodation to continue on.

The bears are growling. They haven’t been in hibernation but have been bowled over by the bulls at every turn. The indices have still not seen a more than 1% pullback in one full session. WHY SHOULD IT?

The VIX is stuck under 20 – which tells us the market is NOT expecting big swings to occur. Is there a catalyst to get it moving higher? What is it?

Should a big move up or down happen that would be the outlier – the unexpected move that if it is two standard deviations away it would only be a 5% chance of happening – hence, low odds (see VIX chart).

The warnings of Caesar are always upon us – ‘beware the Ides of March‘ – which lands on the 15th. It’ll be interesting to see how the month plays out after a great start to the year.

Bob Lang is the Senior Market Strategist for options trading newsletter Explosive Options