Leaders around the world have failed to inspire investors, and last week provided yet another example. After a promising rally on Wednesday, Thursday was weak and Friday brought a higher-volume selloff. The President’s $450 billion jobs plan appears to have fallen flat, as it focuses on the standard fare of temporary tax breaks, Federal spending, and subsidies. Also, the European Central Bank and the “Group of Seven” have been reluctant to be aggressive in stimulating growth in Europe. The tenuous situation in Greece led to a fall in the euro last week and a significant rise in the dollar.
I hope you had the opportunity to attend a 9/11 memorial ceremony or otherwise reflect on how this tragic event has impacted our nation and the world. Yes, there is the unfortunate fallout that includes health and psychological impacts on those caught in the front lines, the ongoing War on Terror, with its huge pricetag and the burden placed upon our military families, as well as heightened security, suspicion, and paranoia that we all live with everyday. But there also has been a noticeable return to community and a reassessment of our priorities that so often only happens in the aftermath of a major catastrophe, whether natural (like Hurricane Katrina or the earthquake/tsunami in Japan) or man-made (like 9/11). Yes, 9/11 changed the way we think and the way we live, but it didn’t change who we are … in fact, I think it reminded us of who we are.
Back to the markets. The VIX (CBOE Market Volatility Index or “fear gauge”) spent much of the day on Friday above 40 before closing at a still-elevated 38.52, which indicates significant investor fear. Financials continues to lead the market both up or down, and Financials, Energy, and Materials were the big losers on Friday’s selloff.
Looking at the SPY chart, the channel between support at 112 and resistance at 121 got an upside resolution the week before last, but then September turned it into a false breakout. After rallying nicely back to the top of the channel intraday on Thursday, weakness set in, and now price is back to the middle of the channel. RSI and MACD continue to search for direction. Bollinger Bands have pretty much done their “mean reversion” after becoming quite wide. As it did in August, price can ride the lower band for quite awhile if it so chooses, dragging the BB significantly lower. Let’s see if 112 can hold support a third time (if tested).