Market psychology: One of my all-time favorite market quotes is from the 1987 movie Wall Street wherein Gordon Gekko declares that, “Money itself isn’t lost or made, its simply transferred from one perception to another.” Well perceptions have certainly changed…three months ago the market was very worried that the European financial crisis would spin out of control with contagion hitting all global markets…now fear is greatly reduced…especially since Draghi made his famous, “Whatever it takes,” statement on July 26…and that change in perception has shown up across asset classes.
Stocks: since the Key Turn Date and Key Weekly Reversal of June 4 theDJI has closed higher 9 out of 11 weeks, is up 1175 points (~10%) and closed this week at its highest weekly close since 2007. Since Draghi’s comments the major North American stock indices have risen ~5%, the German DAX is up ~11%, the UK FTSE is up ~7%, while Spanish and Italian stock indices are up ~25%!
VIX: the “fear” index, closed this past week at a 5 year low down ~50% from its June 4 Key Turn Date.
US and CAD interest rates: have risen sharply across the curve since Draghi’s comments while Spanish and Italian bond yields have fallen sharply.
Gold: implied volatility is near its lowest point of the past10 years…gold has been trading in a narrower and narrower range over the past 4 months…breakout ahead?
Crude: WTI hit a low of $78 on June 28…it’s now $96 up ~23%…Iran/Israel fears?
TSE: up 200 points on the week, up 755 (~6.5%) points since the June 4 lows.
Apple: hit a new all-time-high this week (up ~13% since Draghi’s statement) with a market cap of over $600 Billion. To put that market cap in perspective….it’s ~$200 Billion more than 2nd place Exxon, it’s double the market cap of third place Microsoft…double the combined market cap of Canada’s top 5 banks.
Royal Bank: closed at a 3 month high up ~16% from the June 4 lows…the broad US Bank Share Index is up ~15% from the June 4 lows.
CAD: is up over 5 cents from its June 4 lows at a 3 month high above 101.
Volume: share trading volume has been on a declining trend for the past few years and 2012 is on track to register the lowest annual volume in 15 years. This past week appears to be the lowest weekly volume in years…and it felt like it…summer doldrums in spades! (As an aside…the declining trading volumes and low interest rates are a double-whammy hitting the stock brokerage business…brokerage firms are losing money…expect consolidation across the industry.) If there is an Achilles heel to the recent stock market gains it may be that the rally has been on very light volume.
Money is mobile: Prices change as perceptions change…and as perceptions change money moves from one place to another…it moves from the center to the periphery…and back…from the “old reliable” to the exotic…and back…from low beta to high beta…and back…from New York to emerging markets…and back…from low yields to high yields…and back. A change in perceptions shows up across asset classes…in some sooner than others…in some more dramatically than others…by watching how these asset classes move relative to one another you can get a sense of how market perceptions are changing…you can find trading opportunities that “go with the flow.”
Trading: my theme for the past several weeks has been that, “this market wants to go higher.” I will maintain long positions in
