Markets Set in a Holding Pattern Until the Fall

By Bob O'Brien

This stock market has really been historical over the last 12 months. This year in and of itself has been quite a ride, but where does this leave us? The market has been stabilizing and trading in a range for two months. There may be a big move to the upside this Fall out in front of the heavy inflation to follow.

The wicked swings are not as frequent, and the VIX has been going lower and lower. Although the volatility it is still relatively high by historical standards, the market does appear to be getting calmer and calmer.

S&P in a Range

Unless there is some game changing data over the summer the market is not going to see any big swings until the Fall. The financial carnage is now under control in an economy that has been able to buy time with massive government stimulus.

Bernanke and many others have said “Recovery late in the Year (2009)”. I think there will be real signs of strength in the Fall, when a lot of the stimulus really kicks into high gear. Tech appears to be strong and getting stronger and will be a real leader in a market that moves big to the upside.

Real growth in the US economy will continue to be sluggish net of inflation, but the stock market is going to move higher at a faster pace than some people are anticipating because of inflation.

Deflation and Inflation are razors edge in this economy, and inflation will win!

The inflation fears in the Fall with be in high gear as well, and the Fed is certain to be raising rates in early 2010. The S&P at 1000 or 1100 will not be the same as it was in the past when adjusted for inflation that will be running at about 5% a year or higher.

Historical

Original article

Comments

[Roger Knights:]

"the market does appear to be getting calmer and calmer."

The chart below those words shows a head-and-shoulders top developing.

Jun 28 06:19 AM

[Carlos Lam:]

"I think there will be real signs of strength in the Fall, when a lot of the stimulus really kicks into high gear."

More Keynesian foolishness from MW! For us to believe that the economy will revive in the fall one has to believe:

1. Keynesianism will work despite not working during the Great Depression and during Japan's Lost Decade

2. The answer to too much debt is more debt

3. Printing one's currency to death is the way to foster economic growth

Jun 28 07:00 AM

[Pauly B:]

The market is all about earnings earnings and earnings! Even tech which has been strong could see a significant pullback. As we go into July we shall see how institutions and major market makers react as earnings and guidance are given. I dont think it will be pretty.

The VIX is at the lower end of the Bollingers on the daily which tells me to buy a few puts now.

Jun 28 08:32 AM

[Baboon:]

The quiet before the storm?


On Jun 28 06:19 AM Roger Knights wrote:

> "the market does appear to be getting calmer and calmer."
>
> The chart below those words shows a head-and-shoulders top developing.

Jun 28 10:10 AM

[CLH:]

If the Fed raises rates in the next 2 years it will be a mistake. I see no inflation for a long time. This recovery will take a long time but its not too early to buy equities.

Jun 28 02:03 PM

[DaveW:]

Three significant reasons why there will be NO holding pattern at all.

1.) The VIX is interacting with a long term trend line that has produced large bounces at every touch:
img13.imageshack.us/im...

2.) There are 'issues' in the bond market coming to a head this week, nicely summarized in this article:
blog.rebeltraders.net/.../

3.) The weekly SPX chart is quite similarly to June of '08 when the S&P was at 1400 and cut that number just about in half in the following 6 months:
img10.imageshack.us/im...

No, the fireworks start much sooner than you expect...

Jun 29 02:10 AM