The Big Market Squeeze

Volatility definitely increased leading up to this weeks quadruple witching and the S&P (400, 500 and 600) index re-balancing taking place tonight after the close.  Selling the last two weeks resulted in oversold conditions in the near term charts and massive short covering at the market as every fund and investment bank bought new shares (as they rebalanced ahead of the indexes), resulted in two astounding days of back to back two percent gains.  Bulls were partying in the streets but is it warranted?   Has anything truly changed? 

Yes, the Fed has reassured investors that they have no intention of raising rates any time soon which is what everyone wanted to hear but we still have a bull market which has had an incredible six-year run so just "who" is going to buy at these elevated levels for their 2015 portfolio?

I also do not believe that crude oil (and oil/gas companies) are out of the woods yet either.  There's that pesky $OVX which is the VIX for crude oil.  Note how it's not coming back to earth?  Hmmmmm  This certainly seems to imply to me that crude oil's fall is not over......but hey, I could be wrong.  Let's watch and see if worries of oil & gas name defaults doesn't resurface in the weeks to come.

For what it's worth everyone is curious how often the market had two day, two percent moves and here are the numbers as well as a 20-year chart.  How you interpret it is up to you. (click to enlarge)

With Christmas and New Years the next two weeks and fund managers headed out to vacation, volumes will be abysmal and algos set to low speed.  It's a great time to shut down the computer and take time off yourself.  Barring any unexpected news such as defaults, I would expect the market to drift sideways to up.  Happy Holidays to all.

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