A picture is worth a thousand words, right? I’m definitely a visual learner and know that charts are sometimes much better at illustrating a point than explaining it through 5 paragraphs of text, so I’m going to start a new series on the blog called “Chart of the Week” where I post something interesting I…
What’s the Fundamental Problem with this Month’s Stock Market Rally?
In short, the breadth, or participation, is waning pretty dramatically. Basically, the rally isn’t nearly as strong as it appears. Let’s dive into some charts to illustrate what I mean by comparing the S&P 500 Index (Large Cap US stocks) to various sectors and asset classes. The S&P 500 is the blue line in all…
Why I Don’t Trust this Bounce in Stocks
One of the most important determinants of stock market returns in the short/intermediate term is investor appetite for risk. When investors in the market are confident and display risk seeking behavior, we tend to see assets (like stocks) ignore bad news and rally on good news. However, the reverse occurs when investors are displaying a…
“Phase 3” Right Around the Corner for Stocks
For those of you that read my latest letter to clients (which I’m sure everyone did…but if you haven’t had a chance yet, you can find it here), the S&P 500 is about to enter what I consider “Phase 3”. This means it’s time to aggressively hedge/reduce stock risk. I spent a good bit of…
The Stock Market is Approaching Another Turning Point
The S&P 500 has essentially flat-lined since March but we’ve been losing breadth, meaning fewer stocks are participating in the rally, as shown in the chart below. The black line shows the S&P 500 over the past 2 years and the green line shows the number of stocks in the S&P 500 trading above their…
High Alert on US Stocks
The S&P 500 failed to close above some key levels last Friday for the end of the month which raises the probability we see some weakness this month. Interestingly, I recently read that the range of the stock market this year has been the tightest market since the 1880’s. So we’ll see if any weakness…
S&P 500: Early Warning Signals Beginning to Flash
Two of the best ways to track investor’s sentiment toward risk are to track the Volatility Index (VIX) relative to stocks and high yield bonds relative to stocks – and both have been flashing “warning” signs since early July. These are important to watch because stocks are usually the last asset class to react to…
Why there is Confusion in the Markets Right Now
Stocks have had a pretty bumpy ride over the last three weeks, with the S&P 500 falling exactly 10% from the September 19th high. The S&P 500 cash index, which is what you see quoted on TV and in the paper, fell almost 9.9% but the S&P 500 futures fell exactly 10.0% and turned on…