Wow! I did not do a newsletter last week and
Friday we have the biggest one day sell off
in quite some time.
The Friday’s Job Report came in better than expected,
prompting investors to think that the Fed may raise
interest rates sooner than expected.
This caused the dollar to go up and gold to be sold off.
The TLT also dropped on the speculation.
Now today, the market is recovering a bit.
The question is this … was there something that could
have alerted us to a sell off?
The answer is to keep an eye on the VIX.
If you look at a daily chart of the VIX, you will see that
on February 25th, it hit a low of 12.86.
From there is traded sideways for a few days.
The support line on the VIX is 12.50. And if you look at
a daily chart of the VIX, you can see that for the last
two years the VIX had bounced up off that price level.
Yes, it has gotten below it a few times. But everytime it
does, it pops right back up.
And when the VIX moves up, the markets should move
It pays to keep an eye on the VIX and know where
key support and resistance is.
As you know, I track corporate buyback activity.
For the month of February, there was a whopping
$73.7 Billions dollars committed to share buy backs.
That is the highest amount I have seen committed in
quite some time.
The largest was Home Depot. Home Depot annouced
an $18 Billion buy back on February 24th.
After Home Depot, was the $10 Billion buy back
announced by Comcast Corp.
These are incredible amounts and as I have been
saying for sometime now, that this is one of the
reasons that the markets continue higher.
There are no alternative investments available to
companies that make sense, so they continue to buy
back their own shares.
The question is when will this activity begin to taper
off? When the Fed starts to raise rates?
Or will companies continue their massive buy backs
even in a higher interest rate environment?
I don’t know the answer to that question, but I do
know I will continue to track the activity.
I hope this has been helpful.
Until next week, trade safely.