Where Has the Market Fear Gone?

Includes: SPY, VXX
by: Bob Lang

It's nearly the end of May, and the indices are up a little more than 1% for the month. What happened to sell in May and go away? Of course, there is still another week to settle the month, a crucial week if you interpret the charts. The monthly SPX shows a bear retest, and earlier this month the important 10 month MA was tested and rejected. This is natural after a steep decline that occurred over the last seven months, and I expect to see some flattening out and range pattern settling. After all, volatility is not indicating any wild swings into the future (the unknowns are STILL out there).

The weekly SPX chart shows an interesting formation. For the bulls, an inverse h/s pattern that can make its way up to 1300 or so (no typo) if it breaks the neckline of 940 definitively on the upside. That may not occur for quite some time though, so the odds favor a failure of this pattern. For the bears, this rejection level sets up several scenarios: 1. a 50% retracement to 800 (930-666) then bounce, 2. a further extension of the down move to the 740 are which once served as support and resistance, 3. a test of the March lows at 666, which may take as little as five weeks. With the summer doldrums coming up then talk of a summer rally, we could just chop around here and give nimble traders the best chance to win.

Credit Cards - It'll Never Be The Same Again

Lots of talk this week about credit card reform. President Obama signed into law a credit card user's bill of rights, which seems to give the cardholder a break. I think it's a way of getting our citizens OFF credit by discouraging the banks from offering it out so frequently. The banks will be punished the most if they have many accounts and cards outstanding. This is a civil way of telling the banks to back off. The loose credit and standards are what started the mess we're in, this is a good way to permanently make the banks responsible. Some may see pain in this (the banks surely do), but this is the best medicine for the future.

Fear, or Lack Thereof

The slide in the VIX has been monstrous. Where has all the fear gone? Is fear not a factor anymore? I certainly don't see any Lehman or AIG situations out there or heard of any, but is this anytime to be complacent? The VIX is showing extremely low levels of concern here, and frankly that's troubling. The daily VIX hit a low of 26 or so last week, a level not seen since Aug 2008. Prices, on the other hand are hardly at those levels.

Interest Rates and Gold - The Fed IS Watching

Rates have slowly climbed lately, and so has gold. More importantly, the dollar has been crushed to levels not seen since mid-Dec 2008. What happened to our strong dollar policy? Perhaps the time has come that our creditors have said enough is enough... we don't want to hold your debt as your currency is at risk. Sure, the cheap dollar is good for exports in the US, yet not so much for our trading partners. The Fed is always on watch for inflation, and this time around has to be a concern. If the trend continues the Fed will have no choice but to start a rate increase cycle to stem the inflation tide.