Fear Seems Overdone

There seems to be an awful lot of fear present in this relatively neutral market lull.  I'm not sure what to make of it.  A "difficult" period of market congestion may lay ahead.  Fear index is from CNN, VIX chart from stockcharts.com.

IBB vs. FBT Extreme Biotechnology ETFs

If you can stomach extreme volatility (ie. a near 50% correction like in 2011), FBT by First Trust is the ultra biotechnology ETF.  They're also the creators of FDN, the Dow Jones Internet Index ETF which is also on fire (it's 10% GOOG).

Market In Correction?

According to Investors Business Daily, the market has experienced a high enough number of distrubution days relative to accumulation days to make the liklihood of a correction in the US indicies likely. Depending on how today plays out, they may issue a "market in correction" verdict in their Big Picture column later today.

They may be correct. We could experience another correction. However, the intensity of selling this time is reminding me of the May 2006 correction rather than the 2008 crash. I think the downside this time is limited given where we stand currently. It will be difficult for the DOW and S&P 500 to spend a significant amount of time below their important respective psychological 10 000 and 1000 point levels. Any significant move below these levels, should bring in institutional value investors in addition to technical support buyers.

Mid-Term Election Year

This year is a much talked about mid-term election year. As we all know, North American equity markets usually post a major multiyear low during the later part of a mid-term election year.




Have we seen the lows for the year or will the market move down sharply through September as it does in a typical mid-term election year? It really could go either way at this point. From a technical perspective, this year has played out in classic fashion. Support has held well on the DOW at ~10 000, dipping slightly below 9700 in July. If this year follows the mid-term election pattern, we could see the DOW make a low at ~9000, at which there is strong technical support. So was the July low, the multiyear low for the markets or are we going to fall into correction again and make new lows through September?

The problem with this mid-term election year is that it is the primary focus of the media more so than any other mid-term election year. Every stock analyst is referring to this year as a mid-term election year and drawing attention to the fact that a correction could be around the corner. Pessimism is elevated, the VIX is elevated but wavering, the Put/Call ratio is elevated, 10-year treasury yeilds are at record lows, bonds are overbought and there is still a ton of cash sitting on the sidelines.

The real question is whether or not there are enough sellers left to push the market to a new low.