Market Summary

This last week was a good week in the market with the major indices showing gains and the S&P500 gaping higher on Friday. With 3rd quarter earnings season behind us for the most part market participants are looking to the release of economic numbers for a sense of direction in the economy. The 1st Friday of every month is the release of Non-Farm Payroll (NFP) from the Department of Labor which is one of the biggest movers of the market. This last release, while not spectacular, was better than expected and the market gaped up in response. The Federal Reserve also watches these numbers closely to determine when or if to do Quantitative easing, in other words, to print money and to buy bonds which gives the US Treasury cash. With the better numbers they are less inclined to do so.

One of the interesting indicators I follow is the Volatility Index ($VIX), the so called 'Fear Index' as it is called. When the $VIX goes down there is less fear in the market and the market goes up, and when the $VIX goes up there is more fear in the market and the market goes down. In other words it is inversely correlated to the market and that is how it works. When the $VIX gets to below two standard deviations from it moving average and comes back up that means it has made a low and is a buy signal on the $VIX which is a sell signal on the market. But it does not correlate immediately but has a little bit of a lag time. The first time it occurred this year was on January 12 and then about 8 days later the market dropped about 10%. The second time it occurred this year was on April 13 and then the market hit a high on April 26 and dropped about 20% to the July lows. See the first chart below and the highlighted ovals and compare those dates to the S&P500 chart below that. We again had the $VIX drop below its lower standard deviation on Friday. Will this be followed by another drop in the market? It is interesting to note that the market often reverses course over long weekends. We had a reversal at the beginning of July after the long July 4 weekend. How we fair after this long labor day weekend remains to be seen. The markets are coming up to their 200 day moving averages and if they can get above that level it would be a good sign and indicate strength in the markets. If however they get up to that level and reverse it would be a good shorting opportunity. How the markets go we will just have to wait and see. Click on charts to enlarge.




The ETFs followed had a good week with natural gas, the laggard for the year, doing the best up nearly 5%. For the YTD period gold continues to outperform. Click on table to enlarge.