Now that the market has scared investors away from buying the recent dip, will it scare investors into thinking they will miss the next leg up?
Charts Courtesy of Yahoo Finance
The recent dip has been wiped from memory with two extremely bullish weeks where it was more difficult to find negative price action than positive action. The only exception to the rule has been in the commodity space. The new highs that are approaching are probably scaring investors into buying because every perceived lost opportunity inspires at least one foolish leap of faith.
Most likely those that buy in will not be punished right away. The market may take a pause here to wait and see if new investors are willing to push prices higher. In fact when and if those higher prices come, they just might push even higher before the next pause or mini-correction.
Chart Courtesy of StockCharts.com
As demonstrated by the Nasdaq Composite Index, the market has taken a leap out of the hole it started to dig in late September. Perhaps this could be the time where trading volatility is muted and mistakes and victories will be hard to distinguish.
This past week was similar to the week before where there really weren’t any losing sectors.
Risky assets such as semiconductors and telecom continue to be bought up. Really the only losers in this past month have been Gold and Oil.
Charts Courtesy of StockCharts.com
Both commodity asset classes are hitting multi-year lows when looking at weekly charts. This is interesting since it may be due to the US Dollar’s strength. Once the US dollar started to take off in the late summer commodities have had a most difficult time commanding higher prices.
Chart Courtesy of Yahoo Finance
This can be seen by comparing three ETFs that represent the three asset classes. UUP, an ETF capturing the US Dollar versus a basket of currencies, GLD, the gold ETF, and USO, the US oil ETF. With the end of the Quantitative Easing in the US, any move or change in policy at the Fed may have a strong impact on the US Dollar Currency. This is just one scenario where commodity prices may turn.
Though this week does bring some economic data and continued earnings reports, it may turn out to be a muted one. The economic calendar is as follows:
Monday – Euro-zone Manufacturing PMI, US Manufacturing PMI, Earnings from AIG, and Marathon Oil; Tuesday – Australian Interest Rate Policy Decision, US Factory Orders, Earnings from Alibaba, Valero Energy, Priceline, US Mid Term Government Elections; Wednesday – UK Services PMI, Euro-zone Retail Sales, US Services PMI, US ADP Employment Change, Earnings from Tesla, Time Warner, and Solar City; Thursday – Australian Unemployment Report, Euro-zone Economic Growth Forecasts, German Factory Orders, UK Industrial Production, Bank of England Interest Policy Decision, Bank of England Asset Purchase Facility Adjustment, European Central Bank Interest Rate Decision, US Weekly Jobless Claims, Earnings from Disney, AstraZeneca, Cablevision; Friday – Australian Interest Rate Decision, US Employment Report, Earnings from Berkshire Hathaway.
In terms of where some of the major ETFs might close by the end of the week: SPY, the S&P 500 ETF, might land between 197.80 and 205.40; USO, the US oil ETF, may end between 29.80 and 31.60; TLT, the 20+ year maturity US Government bond ETF, may see anywhere between 117.00 and 121.50 by the end of the week; GLD, the gold ETF, may land between 110.00 and 115.30; IWM; the Russell 2000 ETF, may land in between 113.70 and 119.40.
So now that certain aspects of the market have cooled down, are you going to trade more or trade less? What is important, regardless if you have been a participant as of late, is understanding if your trading strategy is working out as planned. Are the relationships between certain assets behaving as you suspected? In low volatility times it is sometimes hard to tell. Just profits and losses alone shouldn’t dictate success.
Good luck and trade rationally.