Too Early to Flash the ‘All Clear’ Signal?

This past market week was a microcosm of what we have been experiencing for the better part of two years. The ups and downs caused be nauseating noise and news, trading/program snafus and psychological shakeouts along the spectrum of fear and greed.

There was enough action in these last two weeks to fill the coffers for two years. And yet with the perceived manipulation and timing troubles is there any wonder why the ‘average’ investor has little confidence to put money to work? Fool me once, shame on you….fool me twice, shame on me.

Trading this market has been the ideal approach, those who swing or place longer term bets have been punished for staying too long.

So, now we have the Fed and ECB decision in the rear view mirror along with the jobs report, which on the headline showed better than expected growth. The market celebrated that feat with a sharp 1.5% rise Friday, the SPX finishing at 1390, the highest level since when the markets started their sharp nose-dive in early May.

That drop was stoked by the uncertainty surrounding Greece. This most recent rally (see the chart below) has been steady but choppy. Ironically, after rising nearly 10% from the early June lows there is still some doubt and confusion.

No rally day seems to be trusted and that certainly makes sense. Any sharp move up does not stick for more than a couple of days when the sellers hit the button.

Earnings have been less than stellar, we talked about that likely being the case last month. The economy grew less than 2% in the second quarter and estimates were far too high to exceed with that kind of growth.

We have seen a majority of names beat their earnings bogey but the outlook is mostly one of uncertainty. The next few weeks are a bit quieter with earnings and news. In fact, the VIX is showing a bit less fear (too little?) with a move down below 16 on the close Friday.
It’s not a stretch to think the sellers from these latest rallies will come out on any sign of trouble. While Europe is still dealing with their trouble and China is trying to land softly, the US is still growing – albeit at a slower pace. The best house in a bad neighborhood, but still too early to go for it.

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