The market is strutting along in what I see as a bear market rally. However, we are watching the levels because what appears as a rally might transform into a full-blown bull run, if commodities and oil keep going down, which i don’t expect to continue for too long. Here is a chart for gold from Trader Mark:
Gold is also falling because it just needed to in order to stay in a long-term bull trend. It is also falling because of the stronger dollar in the past weeks. Equity gains during dollar bull markets (20% rally preceded by a 20% decline) are much greater than dollar bears (20% decline preceded by a 20% rally).The average return of the S&P 500 during dollar bull markets is over 80%. During dollar declines, the average return is less than 20%.
This is the latest must-see interview with Charles Munger, the guy behind Warren Buffett and his partner in the establishment. There is so much wisdom here, I can hardly write more about it.
Direct link to Munger video
For those traders interested in trading or understanding oil, please start tracking the Crude Oil VIX index which the CBOE realeased recently. On days when oil prices have a big swing, the index, called the Crude Oil VIX, tends to respond dramatically. It spiked 25.8% on June 6, based on historical data, when oil shot up $11. When crude tumbled for four sessions in a row last month, the index jacked up 13% and hit a record on July 17. Not surprisingly given the wild swings in crude recently, the volatility index has surged 66% since last May, based on historical figures. The index is based on the weighted prices of all out-of-the-money but non-zero options on the U.S. Oil Fund, the biggest oil exchange-traded fund.