While the bulls should not be braggarts, I think we have to categorize the state of the stock market as being in the midst of a melt-up. Just take a look at the three month chart of the S&P 500 (SPX). I attribute this to several factors:
- No clear sign of a global economic recession. We may have slowing rates of growth due to Europe but not negative global rates of growth
- Continued earnings growth and earnings which exceed expectations.
- Strong credit markets which are absent any credit default swap bear market assault
- European credit crisis having seemed to have turned a corner.
- The realization, despite Bill Gross’ protestations, that low interest rates in the bond market are finally causing investors to move from fixed income to equities
- Election year cycles and politics
- It has always been my assertion that the VIX is the false messiah of market indicators. Market participants have created an asset class from a statistic. That is a big mistake. Most traders have no idea how the VIX is even calculated. One of the key tells to this market melt-up, which I mentioned on the site, was the inability of the VIX to break through and hold 25. Again, just take a look at the three month chart of the VIX.
- The last straw so-to-speak of the Algos / HFTs when Knight Capital Group (KCG) almost went belly up
- The inability of the “London Whale” problem or the bankruptcy of MF Global to cause a market event
- Underperformance of dedicated short sellers and hedge funds.
Remember that today is option expiration. That should take the yawn ou of the market at the end of the day.
Also remember, market melt-up or not, take something off the table.
I will be heading out west to Las Vegas and Los Angeles next week on a business trip. I hope to bring back some interesting investment tidbits. To the extent I can, I will check in via the airwaves to one of the Wall Street All-Star diaries.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC had no positions in stocks mentioned — although positions can change at any time.
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com
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