Thursday, February 23, 2012

Market Madness Daily Market Update - 02/23/2012

Well today, in an unsurprising reversal from yesterday, market indices fought higher and left behind them a fairly strong tape. This coming after only the slightest rest/correction of the past couple days.
What was interesting today was the change in flow of money from large caps back to the more speculative small caps, which had been under-performing as of late.

I was all but certain (a dangerous position when it comes to markets) that the steadily building weakness, first in small caps and then more recently in large caps, was pointing to a meaningful downward price correction. I still feel such an event is imminent but it is hard to have too much conviction in that view after today's action. Theories are useful but price is king, the best indicator of them all. And we should always at least listen to what it is saying--regardless of our own personal opinions--and be prepared to change our minds, and our strategies.

The image below is a 90 day chart with an intra-day view using 4 hour bars. It quite clearly shows the steadily decreasing volatility over the last few months, and highlights the notable "corrections" and their diminishing magnitude and duration. This appears to be quite bullish, and indeed it has been to date. However, volatility often reaches very low levels before exploding upward. A calm before the storm situation.

(Click for full size image in a new window)
2/23/12 spx

Another bit of evidence for this scenario is the continuing out-performance of the precious metals. Gold and silver screamed higher again today, making new multi-month highs. This tends to suggest to me that some smart money somewhere knows something I don't and is laying down some heavy hedges.
Greece? Benny and the Inkjets?
Who knows at this point. Could be nothing at all for that matter.

Stay safe out there!

No comments: