Bluepoint daily market view – March 19, 2010
Volume Volume – where is the volume? As the VIX declines below the 17 mark many of the traders are asking where is the volume? Many fear that this is not confirming the recent move up. Is this a signal for a market crash in April? The answer to this I believe is part yes and part no.
For the yes part of this response – I believe that the fundamental issue is that most people have stayed out of the recent market rise and have no intention to get back in until they see the “main street” economy get better. They fundamentally do not understand how the market can go up while they see such misery on the streets. They do not understand how companies can actual have good earnings that could cause stocks to go up. Of course market insiders very well know that due to company cost reductions and global growth, this is very possible. The only negative to stocks is that American companies will be asked to pay higher taxes to pay for the misery on the streets – for example the pending health care bill in the Congress.
For the no part of this response – hedge fund and traders are all fairly well already invested and what little money that is coming into the market is fueling the rise, as there is no sellers. Every one knows that this can not continue and placing their bets on an eventual American recovery forgetting any potential structural issues that arise several years from now (i.e. looming debit crisis). To protect themselves there is record option volume to protect them to the down side. This trade will eventual unwind and is a time bomb ticking. But like any “Ponzi” scheme it can go along way before it crashes.
So the “melt up” continues … until it doesn’t.
Equities have a run a long way now and any day a “black swan” is lurking to smack it down. Greece issues, rising interest rates (suprise Fed hike) or some other geopolitical event could hit it. So I am looking for a slight rise and a pull back before the week-end this Friday on these fears. Commodities should continue their sideways move before they start their next leg up. Dollar oddly enough could catch a bid and move higher. Missed the Bond short at 118+ but perhaps this chance will come again in the next few days on any dips in equities.