Bears Move to VIX as Indices All See New Highs

The bears tried to put up a little fight on Tuesday, but that only lasted a few hours and it wasn’t much of a battle. On Wednesday, the bulls came right back with the big guns and a headline close that saw all of the major stock market indices see fresh all-time highs along with high yield bonds. While I had been looking for the Dow, S&P 500, S&P 400 and Russell 2000 to see these levels, I did not expect the NASDAQ 100 to do so this quickly.

The chart below shows the path I was looking for with one more small decline in the index just below the May bottom. As the index began to rally and lead, I offered that I would like to see the other indices lead the market lower on the next pullback and then see the NASDAQ 100 soar again. There was no next pullback which is still okay.

At this point with all of the major stock market indices seeing blue skies, the bears are focused on the volatility index or VIX which is showing overwhelming complacency, or at least that’s their take. The VIX is a funny animal and its behavior has certainly morphed over the years as tradeable products have been introduced. I don’t have a strong opinion right now on the continued value of the VIX, other than to say that we should be able to discern something a few months from now.

In short, I remain in the trading range camp with a slightly upward tilt and do not think the across the board new highs are the beginning of the next leg to 23,000. I think we need some backing and filling over time or a pullback first. This is definitely not how bear markets begin!

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Bulls Don’t Want to Quit, But…

The bulls had another strong day on Friday with now the S&P 400 and Russell 2000 on the verge of fresh all-time highs. Semis continue to bounce back. Transports remain strong and discretionary and banks are behaving constructively. Materials and industrials are quietly in high gear and long depressed energy is ticking higher. High yield is also picking up again and you know my feelings on that along with the broad participation seen on the NYSE. Just keep in mind that this is not a young bull market so it’s behavior won’t be as rock solid as one in its early stages.

This week we have option expiration, but I do not believe it is going to play a big role in market direction. Earnings season picks up and that should make for some fun. Although volume has lagged for a long while, given that it’s summer, I would expect it to get even lighter barring an external market event.

Although I continue to paint what seems to be a rosy picture, my intermediate-term forecast remains the same. I believe stocks are in a trading range until proven otherwise with perhaps a slight upward tilt.

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Bulls & Bears Even But Opex Tilts Down

Bulls and bears come into the new week on equal footing,  both still fighting it out in the trading range. The bulls have done nothing wrong to indicate anything more than a 3-5% pullback and the bears will have a lot to prove at that point. Since early December, the small cap Russell 2000 has lagged and the bulls are getting to that point where it’s time to step up. Clearly, the unpopular NASDAQ 100 has been the leadership index. As I mentioned on CNBC last week, I do think Dow 20,000 gets hit sooner than, but that would be a short-term selling opportunity rather than a launching pad.

For this holiday shortened, option expiration week, the seasonal trend is for mildly lower prices and that’s how it look like the week is beginning. The “losers” from Q4 or the mean reversion instruments continue to lead the markets. Those are treasury bonds, gold, yen and euro. I am a little surprised that staples, utilities and REITs haven’t stepped up, but maybe they need a little soft patch from stocks. In any case, these are short-term opportunities and not trades for the whole year.

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