So much uncertainty to throw the markets into a tailspin. Will they or won’t they? Up or down? Growth or recession? Romney or Obama? Heck, let’s just pack it in and call it a day until it’s all settled. Well…that is NOT AN OPTION.
We need to battle through the negativity, poor sentiment and news to seek answers and truth. Oh, and we have to make money trading, too. How should we proceed? It’s best to tread carefully through the murky waters and be very selective.
The bombshells are coming out from every corner of the sky and unlike a few months ago the bad news is having an effect on markets. There is no problem being cautious, be aware there are uncertainties.
Let’s talk sentiment here. Clearly as we have heard the fear and uncertainty of news over in Europe, China and here in the US regarding specific issues has paralyzed investors. We need not look further than the charts to see this in pictures.
The put/call ratio below portrays rising fear as investors/traders reach for protection. Interestingly, this is a far cry from what we saw in ‘calmer times’ during the first quarter of the year. Is the fear warranted? In this very fast changing environment news changes attitudes in an instant. No longer will investors tolerate a continued beating – one hand always on the exit door.
Part 2 of earnings season is now underway and this group is not inspiring much hope for the rest of the year. Cisco warns of longer sales cycles while their growth drivers deteriorate, energy companies miss earnings estimates by a mile and now oil is collapsing, retail names are missing from the high-end (JWN, FOSL) to the low end (WMT, TGT), industrials are hesitating and other tech names (semis) are hanging on by a thread.
We’ll be heading into phase 3 soon (end of may thru end of June) where we see only a trickle of names reporting but some have the ability to move markets (ORCL, ADBE and others). Markets are down roughly 6-7% from the recent highs and buyers are not stepping up to the plate yet. As the distribution (institutional selling) continues we wait until that subsides and big money decides to step back in the game. That will happen when the clouds disappear.
Volatility has picked up recently, no doubt a result of the uncertainty surrounding the outlook. There are still predictions of recession in the US, Greek removal from the EU, China hard landing and Iran/Israel tension. We certainly cannot dismiss these and other levers that can drive markets lower. The VIX is picking up the fear.