Sunday, March 29, 2009

Sideways (stock)

Not talking about the movie, even though I really liked it. Talking about the possible market direction in the near future. Both a successful coworker and I feel that something has changed in our day-to-day trading. We both feel there's been more clashing of orders and less one-directional flow, and think that the market has entered into a consolidation phase.

It makes sense to me in that there's not a whole lot in the near term that could trigger dramatic optimism or pessimism in the market. Back when the DOW was in the 6000's, there was fear that Citigroup or Bank of America wasn't going to last through a weekend. That fear does not feel like it will come back anytime soon. On the upside however, I look at where we are in relation to the bottom at 2002. While we are still below that level on average, I can't say that I believe the economy is stronger than that period of time in any way. A lot more has already been done by the Fed versus back then, leaving less room for further triggers to the upside. I don't see a reason why we should be at a higher level.

Even if we are going to be sideways or in a range for a while, the important question to most people is for how long? I'm not going to make any bold predictions here, but I'm going to point out something that I think is interesting. The VIX, even though it feels like it's come down a lot, is still at 40. This is still a historically high number, and if we do settle into a range, it might be a while before that number pulls down.

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