Weekly Update-August 18, 2012

By: Michael Vodicka

“The VIX is at a 5-year low. That means the market feels more secure and confident right now than BEFORE the financial implosion of 2008.”

It was a bullish breakout for stocks this week, with the averages settling above key levels of resistance. The S&P 500 closed the week at 1,418, firmly above 1,400, and the Dow Jones closed the week at 13, 275, safely above 13,000. Take a look at the S&P 500 below.

 

 

 

 

 

Although this was the sixth consecutive winning week for stocks, the averages had only posted marginal gains the last few weeks while fluctuating around these key levels of support and resistance. But with this week’s strong close, the bulls have clear control of the market

That’s mostly because of a very strange dynamic on the Street. Good economic news sends stocks higher, while bad economic news also sends stocks higher because it increases the probability of central bank stimulation.

That is also showing up in the VIX, which is currently at a 5-year low. That means that the market feels more secure and confident right now than BEFORE the financial implosion of 2008, before anyone figured out that the global financial system is basically one big ponzi scheme, built upon unsustainable levels of debt and obligations that will never be fulfilled.

It’s truly remarkable that the market is complacent as it is right now. Because a simple look at the numbers says Europe is insolvent. At some point, that has to come home to roost.

But for the time being it looks like a no-lose situation for stocks. Because just like we’ve seen for the last three years, the market remains convinced the central banks have everything under control.

Looking forward, it’s an average week for data. Look for the market to trade mostly on sentiment.

  • Wednesday-Existing Home Sales
  • Thursday-New Home Sales
  • Friday-Durable Goods

 

Updates:

Apple, Inc. (AAPL) hit a new all-time high this week as investors big shares up ahead of the release of the iPhone 5. Apple’s share price is high, but the company is an earnings powerhouse, expected to make $43 per share this year and $53 in 2013. That places Apple at about 15X forward earnings, in line with the market and less expensive than many tech brethren. So its important to remember that a share price is really all about earnings. Check out Apple jumping into a new all-time high this week.

 

 

 

 

CF Industries, Inc. (CF) continues to benefit from the bullish movement in corn, beans and wheat, hitting a new 52-week high above $200. Corn, beans and wheat sky rocketed in June and July. That produced big gains for anyone owning grain ETF’s. Agriculture stocks didn’t move as aggressively, but have still been up on the news. And that is still playing out. Including here in CF. A story as big as the summer drought will push a lot of new capital into agricultural assets. And ag stocks like CF is one of them, selling fertilizer to the world’s farmers.

 

 

 

 

With the market hungry for risk, safe assets like investment grade corporate bonds were under pressure. Investment Grade Corporate bond ETF (LQD) was down 1.3, spending most of the week trending lower as capital shifted into higher-growth assets. Investment grade corporate bonds saw big gains in June and July, so this could be part of some short-term weakness with prices getting a little ahead of themselves. Take a look at the gains in June and July and the little pullback this week.

 

 

 

 

That’s all for this week, but until next time, here is a follow up on Apple. Enjoy!

Apple Reaches Record and $600 billion Value on iPad Rumor

Your Investment Partner,

Mike

Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment  Advisor  (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of  Trade before  spending five years managing equity portfolios for a private investment research company.

Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.