Dizzying Volatility

 | Jun 14, 2012 | 6:39 AM EDT  | Comments
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Why did the market sell off Wednesday afternoon? Was it really the comments of former Fed chief Alan Greenspan? Or was it that folks preferred to watch JPMorgan Chase (JPM) CEO Jamie Dimon testify before Congress?

As I watched these on television Wednesday, I was reminded how the market would rally whenever President Clinton would speak during his administration. Then, during the Bush years -- and now, for Obama's presidency -- the market seems to decline each time the president appears on the screen. It had a bit of that feel on Wednesday, as if the market liked seeing Mr. Dimon discuss JPMorgan's fiasco with Congress. As soon as he was done with his testimony, the market headed downward.

You have to admit, it was actually refreshing in this day and age to hear someone take responsibility for his or his firm's actions, rather than play the blame game. I know I found it to be a breath of fresh air.

As for the market, if the moves on the S&P 500 this week had amounted to something like 5 points, we'd probably not even bother with a comment. But when the moves are closer to 1% in both directions, it feels rather dizzy. At least we don't have anyone pining for a 1% down day anymore, as we did in the first quarter. It's fascinating the way we market folks wish for some volatility when we don't have any -- and then, when we get it, we'd prefer that it stop!

My mother would probably use that old adage: The grass is always greener on the other side of the fence. Speaking of my mother, she has not called with regard to the market, nor has she commented once on the European debacle. Perhaps we will hear from her this weekend after the Greek elections?

Perhaps I should not have been so surprised to see that the Investors Intelligence sentiment readings did not budge on the bearish percentage. They do often go hand in hand with my mother's phone call: The bears rise just as she rings asking if she should sell.

I did, however, attempt to find another situation in which the bears were still in the mid-20% range and when the market rallied anyway. It was difficult, but I did find one instance November 2009. The main difference between then and now is that, at that point, we were in the midst of the first round of the Fed's quantitative easing. With Operation Twist nearing an end now, it's a different situation.

Investors Intelligence -- Bears

I figure it will not be long before the "death cross" folks make an appearance, so let's head this off at the pass. iShares MSCI EAFE Index Fund (EFA), which goes long European stocks, saw its 200-day moving average line cross below the 50-day line this week. On the chart below, I have circled where 200 trading days ago was. As you can see, unless EFA collapses in the next few weeks, the 200-day moving average is likely to move sideways rather than down.

EFA -- Daily

Be that as it may, if the Greek elections give the markets over there a jolt lower, I expect this will become the chatter of the day. Maybe that's what we need before we'll see a rise in the Investors Intelligence bearish reading.

In the meantime, the intermediate-term indicators I follow still read as oversold. If we see a negative reaction to the Greek election next week, we can look for positive divergences.


 

Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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