A Confused Market

by Jay Pestrichelli on July 31st, 2012

So far today, there has been a set of conflicting market indicators pointing to some opposing opinions.

On the positive side:
  1. Equity indexes are up slightly with the NASDAQ Composite leading the way higher.
  2. Gold is dropping slightly which tells us the inflation hedgers are sitting this day out.
  3. The Euro/Dollar is making a small rally today

On the negative side:
  1. Volatility is higher despite rising equity prices.  Higher volatility usually accompanies lower stock prices
  2. The 10-year treasury up sending yields down. This is usually a sign of flight to safety.
  3. Crude oil is down for the morning, which lately has been a sign of diminishing demand. This is the face of a lower US Dollar currency.

These opposing dollar flows help illustrate how the markets lack conviction and are waiting for word from the Fed and Jobs number later this week.

But the result of those events may also be in conflict. Expect the market to react positively to a relatively disappointing jobs numbers because it all but guarantees that the Fed will take action and add to the backstop. This was why an ugly GDP number shot the market higher last week.

One could argue by the same logic that a mildly strong jobs number would send the markets lower. Of course the extremes will be the extremes and move the market in a logical direction.


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