This past week in the market was pretty crazy with lots of volatility both on the upside and the downside. Weak markets are typically defined by weak volume, news-driven volatility, and daily swings that are generally larger than those found in healthier bull markets. Thus I think we can all agree that this is a weak market.
What was note-worthy was that the market indexes put in a so-called "bottom" early in the week with big price moves to the upside but, unfortunately, the volume was generally weak so gains typically don't hold very well in those situations. In this case they didn't, because:
Federal Reserve Chairman Ben Bernanke spoke on Wednesday evening and markets didn't like what he had to say, and so the indexes opened in what looked to be an awful day on Thursday when:
Positive news about Greece came on Thursday and instead of it being a big down-day, Thursday turned into a big up-day. Of course on Friday the markets found something else not to like and sold off again hard to the downside.
All in all a roller-coaster of a week and if anyone feels like they want to get off then I wouldn't blame them one bit.
On my blog I try to keep things as simple as possible and look at what markets are doing and not what they might be doing, so to get a better understanding of what is going on 'out there' I decided to look at a variety of charts this week to find out what is going on. To keep things manageable I found I needed to divide between Markets vs. Stocks as there is no uniform movement going on right now.
Up first are the Markets which is the "big-picture" view of what is going on. There are so many issues going on that I think it is best not to read the news at all or otherwise you might become seriously depressed. It is best to let the charts tell you what is happening and not the headlines.
The US Dollar appears to be changing from a year-long downtrend and is starting to rise again. Currency moves always have positives and negatives and there is no way around that as a falling dollar helps commodities and exports but destroys purchasing power. Now things are changing and the Dollar is moving up so expect the opposite effects to occur.
Many analysts and fund managers predicted that Gold and Silver would do well the last couple of years and they were right until a couple of months ago, when Silver went up so high that it crashed (whoops) and now that metal appears to headed lower. Gold also peaked with Silver but did not crash, but now on Friday Gold triggered what I consider to be a normal "Sell-Signal" which is a break of the 50-Day Moving Average on Volume. Thus both metals are now negative so if you hear anyone recommend precious metals now, don't believe them unless the chart shows it happening clearly. Gold and Silver are heading lower from what I can see.
The main stock indexes are also pointing lower but they have not been as weak as I would have thought, and I believe that this is because American corporations are very profitable and in good shape should a crisis occur. Notably, despite all the selling the past couple of days the Indexes have yet to go below the lows that were set early in the week. If things were super-bad I would have expected to see them crash thru those levels but they didn't and hopefully won't (knock on wood). The Russell 2000 is the best and strongest index that I can tell right now while the Dow and S&P look the worst.
The last 'Big-Picture' item I looked at is the VIX Index which is commonly know as the 'Fear Gauge' of the market. The way you interpret this is that the higher the index, the more fear there is. Right now the index does show fear to be rising which is understandable, and I have put past fear events on the chart to give it context. I believe that fear needs to increase a bit more but it won't go as high as some of the other historical periods out there, so we'll see if this proves out or not.
Here is where things get interesting. Based on my survey of the markets and the charts above we should all be depressed and selling everything, right? Let's not make those conclusions just yet, because when I looked at individual stock charts I found several stocks that appear to be doing great! They are rising, have good positive up-volume, and frankly don't seem like they even know that anything bad is happening in the world. I've highlighted a few below so see for yourself:
CROC's (NASDAQ: CROX) is the first one and it appears to be doing great. A strong breakout and the stock has steadily moved higher.
Lululemon Athletica (NASDAQ: LULU) is the big winner for the week as they reported great earnings and the market rewarded the stock with a very nice up-move that took the stock up 20 points from $86 to $106. A fantastic move in a short time.
GT Solar (NASDAQ: SOLR) is another riser for the week as they also recently reported great earnings and increases in their Sales and Earnings forecast as well. A strong move in a sector of the market (solar) that has not fared well lately.
Lastly, Under Armour (NYSE: UA) is a related stock to LULU in that they are both in the apparel industries, and like them this stock also had a nice rise on volume which indicates that investors are not concerned with macro issues and want to buy the stock now rather than later.
Thus based on the charts above what we appear to have is a landscape where Indexes and macro-items look bad and getting worse, while some individual stocks look great and may be getting better. The fact that these two groups are co-existing gives me the belief that things are not as bad as they seem out there, and why I felt that I had to divide things between Markets and Stocks in order to keep things as simple as possible. With proper risk management one can easily be long certain stocks in this environment provided that you have protective stops in place, and if things do improve then you might find yourself holding the possible future-winners.
Change happens in the markets and occurs all the time so it simply depends on how we react to that change. Some like to panic and make sweeping predictions, while I prefer to watch the price and volume action and see what happens. So far I had a profitable week by doing this and I take comfort that I am not in the "panic and prediction" camp.
I don't know the future and I think the below quote sums things up in this market better than I can. Have a good week, be careful, and stay simple.
"It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way." - Charles Dickens