The stock markets have ground higher throughout the summer holiday period as the soothing perception of ever-lasting support from the Central Banks appears to have placed a floor under prices.
Summer markets are traditionally slower – trading volumes diminish and tough decisions are put on the back burner as investors concentrate on family, holidays and relaxation, focus on the financial markets wane and tactical trading can be difficult to gauge and frustrating at best.
The low-volatility is reflected in the current price of the VIX which hit a low of 13.67 this week and closed yesterday at 14.29 down 48% from the 4th June high of 27.73; back on 16th March it touched 13.66 so an eye on this level for support may be prudent. Lower levels from here would reflect numbers not seen since before the financial crisis began back in 2007 and a return to a ‘Goldilocks economy’ – yet there has been no fundamental change in the world despite the recent optimism.
The VIX is widely known as the ‘Fear Index’ where higher prices reflect the broadening levels of worry and angst in the market and vice versa low prices reflect the opposite – denial and complacency.
In summary what we have at the moment is a complacent summer market, with an eerily quiet VIX hitting the low teens and while a summer panic has evaded us this year unlike the turbulent summer of 2011. The vacation period will soon be over and traders will trickle back to their desks, risk will no doubt rise to the fore again and so offering more technical opportunities ahead.
Courtesy of www.bettertrader.co.uk, click here for link