VIX Rising... Stocks Falling?

government stocksThe past month has been an eventful one in the stock market. It almost feels like 2008 again. I almost thought the day of 500+ point daily drops in the market was over, but as I have always said, this fragile state of the market we continue to wade in, not much is required to shake things up.

Debt problems in Europe continue to apply pressure to domestic markets and US has their own basket of problems with their own debt. We have been a kid at a candy store with mom's credit card for the past two years, and collectors are beginning to come knocking. Anyone who believed that we would cruise out of this recession as we have, with minor scratches, was drinking too much government Kool-Aid. The fact is, is that our economy was hinging on borders of depression and that true unemployment spiked to over 20% in some states and that we have now sailed out and are having consumer responses as they were in 2006... Be assured, this is a mirage.

No doubt the government is prepared to battle any new or unforeseen crisis that hit our economy, but if they continue to do so with mindless spending and stimulus, we will find ourselves in a debt hole that is far to deep to dig out. VIX levels are on the rise, which is an alarm clock for bears... Also, high volume levels, which has been bulls' biggest ally, are finding recent record lows. Are we pivoting the market as we speak? I only see a couple scenarios.

The continual trend that we continue to see is the inverse relationship between the dollar and the stock market. As the dollar decreases, we see corporations outsource manufacturing and production which in turn ups their bottom lines, lifting stocks. However, as dollar values rise, foreign purchasing goes down, lowering net income, which causes for a downturn in the market.

With record low levels for the dollar, it is hard to see how it can dip much further. Of course, there is the rare the case that these two could head in the same direction, which would be a very paradoxical event, yet it is possible. If that is the case, it could cause quite the stir in markets.

The Fed has reiterated their plan to keep interest levels low for however long it takes. Many felt that this was the year we would see the hike back up, but it was not meant to be. Banks have forgotten what it is like to have to pay interest on loans and to earn their margins. They have enjoyed the life of free printed money for the past two years and I fear that when the day comes to reinstate interest rates, banks will have quite a problem. Of course, the government does not worry about such things, as much like the stock market, the government is only concerned about the present and not the future.

Keep an eye on the market the next two months, because it will be a telling one. Many bulls may find themselves wishing they would have cashed in on those big gains... I have. Happy Trading.

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