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Market Volatility Bulletin: And The Livin' Is Easy

The Balance of Trade profile picture
The Balance of Trade


  • Equities trade flat, but Russell hits a soft patch.  Pay attention to the US Dollar Index.
  • DoctoRx provides insights into the risks of "reverse QE" - will Dr. Yellen take his prescription?
  • Some back and forth on the shape of the current term structure; contango coming back in on the front end over the last couple days.

CNBC: 11:06 AM

The major US equity indices (SPY, DIA, QQQ, IWM) are trading about flat in morning trade, with the exception of the Russell 2000. VIX has meandered in a tight range, looking for direction.

Precious Metals are giving back some of yesterday's gains. The dollar trades lower against the Pound Sterling.

The dollar (UUP) is still searching for its footing: the US Dollar Index trades at about a 10-month low.

This matters quite a bit because earnings season is upon us: a weaker dollar will act as a tail wind to US earnings (not necessarily equities themselves, but certainly earnings). Currency expert Marc Chandler has a piece this morning on the topic. Keep an eye on it.

The major indices closed higher yesterday with a sweeping victory for bulls on the session. A curious combo of tech (XLK), Real Estate (XLRE) and Materials (XLB) led the charge; yesterday's trade offered up good news to owners of commodities, stocks and bonds.

Shout Out

DoctoRx penned New Data Shows the Fed's Reverse QE Plans are Risky on Jul10. In our view, this was well worth a read particularly because of yesterday's rally. Maybe Chair Yellen read it also and had a change of heart?

The piece features a great deal of visuals, which make the case that even the official unemployment rate is quite low, there may in fact be a decent amount of slack in the US labor market. That being the case, wage growth may not be the "threat" that Fed officials deem.

As mentioned, there are a large number of interesting charts, but we'll treat you to one that we enjoyed on this segment of the piece:

This chart would indicate that wage growth - with the unemployment rate at 4.4% - is not exactly soaring higher.

This article was written by

The Balance of Trade profile picture
Adam Zingg, CFA offers both practical and theoretical perspectives that will benefit readers who wish to learn more about how to execute  on views or strategies that interest them.  Whatever your overarching philosophy or expertise, I believe there is value in understanding how trading works. This is perhaps especially true for investors, who often take a more philosophical, less mechanical view when it comes to their processes. It is not my goal to:1) convince you which side of the market to be on2) establish your trading time frames3) have you directly follow any specific trade ideasInstead, I aim to demonstrate how complicated sounding ideas can be simplified and accessible.  My hope is to grow your tool kit of resources, and give you healthy confidence to execute your own personalized strategy.  Trading and investment are fascinating, applicable across a wide variety of fields and disciplines.  Greater focus on targeting, execution, and exit strategies build transferable life skills.  In reading my work, it is my goal that you will consistently glean useful insights and build skills that enhance your ability to trade and make important decisions.

Analyst’s Disclosure: I am/we are short SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We actively trade the futures markets, potentially taking multiple positions on any given day, both long and short. It is our belief that the S&P 500 is meaningfully overvalued. As such, we typically carry a net short position using ES options and futures.

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