Making Money Alert: Summer Sizzle, Market Fizzle

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Living in beautiful Southern California, I should be the last one to complain when it comes to the weather. But even here in Huntington Beach, we’re experiencing what most of the country has endured this summer, and that is sizzling heat. The only saving grace for me is that the water temperature in the normally chilly Pacific Ocean now is in the 70s, and that makes surfing and swimming a real pleasure.
As for the equity markets, well, that’s been far less sizzle and a lot more fizzle.

One key reason why is that trading volume and volatility have been extremely low. Many traders and Wall Street pros were on vacation last week, and many people remain on vacation this week. Of course, everyone will be back to full strength after the Labor Day holiday, so this fizzle in action is only temporary.

As you can see by the chart here of the CBOE Volatility Index (VIX), more commonly known as the VIX, and even more commonly referred to as the “fear index,” there isn’t much fear in the market right now. There’s also not much action, and hence the low volatility.

Two key catalysts on the horizon that could move markets are Fed Chairman Ben Bernanke’s speech at the Jackson Hole central conference in late August, and then the European Central Bank (ECB) meeting in early September. At the latter meeting, ECB President Mario Draghi is expected to lay out more specifics on the European Union bailout plan. As for Mr. Bernanke, he used his Jackson Hole speech a few years ago to signal the markets about the Fed’s launch of quantitative-easing part II, QE2. If he uses this year’s Jackson Hole meeting to signal the launch of quantitative-easing part III, QE3, it could cause buyers to binge. Until then, don’t look for the markets to make any drastic moves in either direction.

Looking back on the last five days of action in the S&P 500, we’ve seen virtually zero movement. We now are at the same level in the broad-based measure of the domestic market than we were back in April. Since making that April high, we’ve seen a wild dive below both the 50- and 200-day moving averages. We then saw an even wilder surge off of the 200-day average and back up through the 50-day moving average on strong buying. In July, the market bounced around sharply, but all the while it remained above the 50- and 200-day moving averages. The S&P 500 now trades above the psychologically and somewhat technically significant 1,400 level.

Despite the current level on the markets, I remain a skeptic with respect to how much more upside we can see from here, at least in the short term. When the pros get back to it in September, and when the news from the Fed and from the ECB are known, we’ll get a better sense of which direction stocks are likely to traverse. Until then, it’s probably going to be a slow, hot drag through the remaining dog days of summer.

Ain’t No Chance

“Ain’t no chance if you don’t take it.”

–Guy Clark

The incredible Texas singer/songwriter is known to put a whole lot of wisdom into his thoughtful lyrics. Here, the great Guy Clark reminds us that taking chances means going for it in life, and going for it in life is the only way to achieve something other than the mundane. So, when faced with a chance in life, I say take it.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

To the best within us,

Doug Fabian

P.S. Today’s challenging market conditions require even more knowledge than ever for investors and traders like you to keep pace with the latest market intelligence to safeguard your portfolio and to profit from opportunities that only may be available for short periods of time. Join me at this year’s MoneyShow San Francisco, August 24-26, at the San Francisco Marriott Marquis to hear recommendations and advice about how best to profit in 2012 and beyond! Register FREE today by clicking here, going to DougFabian.sanfranciscomoneyshow.com or by calling 1-800/970-4355 and mentioning priority code 027879.