Summer tends to be a pretty quiet time for the stock market and the correction over the past month has fit the bill. These are the times you use to catch up on your research so I’ve spent the past few weeks going through quarterly earnings calls, assessing which countries I feel are positioned well, and which industries should see improvement moving forward. I’ve also updated my “shopping list” for the next time these stocks take a dip.
There are basically two types of corrections against a trend – price corrections and time corrections. Price corrections move in the opposite direction of the major trend whereas time corrections are a pause where the market churns sideways. We’ve actually been stuck in a time correction since July 11th when the market gapped above a pivotal line of resistance. Time corrections are typically a sign of strength; a pause before a resumption of the trend.
S&P 500 ETF (SPY) – 1 year
(click to see larger image)
My biggest concern at this point is how low volatility has become with the VIX around 12. This has been the lower boundary this year and suggests that we’ll see greater volatility this fall (volatility (the VIX) rises when stocks fall).
VIX – 2 years
Things could get interesting next month with the German elections as well as the Fed meeting where they’re expected to announce a reduction in the amount of QE. The currency markets are trading as if there will be no reduction (although, I think the recent weakness in the US dollar is mainly tied to the price correction in the stock market), the bond markets are definitely pricing in a reduction and stocks have been unaffected either way. We’ll see…
Thanks for following!
-Nick