The market wrapped up the final session of the week in a mixed fashion. Overall, it is a slow day with the Dow moving in a very narrow range of 50 points for most of the session. The biggest economic news is of course the non-farm payrolls report for May. And here, we get some real surprise. Instead of 520K job losses expected, the actual reading was a loss of 345K positions. Unemployment rate, meanwhile, soared to a fresh 25-year high at 9.4%. The news triggered one key change in the market. For months since the beginning of the current financial crisis, the US dollar was viewed as a safe-haven. In other words, when risky assets such as equities and commodities saw their prices rise, the dollar would fall. That may start to change now with investors sensing a stronger economy down the road. In fact, for the first time in a while, bond traders have started to price in a 70% chance of a Fed rate hike by the end of this year. Although I don’t think a rate hike will happen thanks to a nearly 10% unemployment rate and a factory utilization rate that is below 70%, the Fed is certainly preparing itself to aggressively hike the interest rate sometime in 2010 when the economy picks up speed. That’s something to bear in mind.

It is probably feeling bored reading the three key indicators (VIX, euro/yen cross, and the Ted Spread) on a daily basis. When I first mentioned them on October 23rd last year, I wrote that:

“… It certainly feels that things will never get better and the worst still lies ahead but we should also realize that these are not normal time. Eventually things will get back to normal no matter how long it takes us to get there. Although it is impossible to predict the exact timing, there are several key indicators that can help us to make judgements…”

Now indeed we are living in a much better environment comparing to last October. Interestingly enough, the three indicators are also close or back to normal. We are going to review each of the three in turn here and I will stop publishing them on a daily basis going forward.

1. VIX

In my comments on October 23rd, I said “Currently the VIX is around 70, which is far from normal and we need to see it close below 30 for several consecutive sessions before we can say things are back to normal”. Coincidentally, the VIX index hit the peak at 89.53 in the very next session and has steadily moved lower since then. Seven months later, it finally broke below 30 on May the 19th. It has been hovering around 30 since that time. It is certainly feeling much quieter these days in the market. In case we forget how 70+ VIX looks like, I will borrow the following points from the Blue Chip Growth newsletter by Louis Navellier.

• The Dow saw its worst week ever from October 6 to 10, losing more than 18%. Ever scarier was that the week was part of a larger eight-day decline that dropped 22%;
• The market turned around quickly on October 13 in the biggest buying party in history, with all major indexes up more than 11%;
• After standing pat for a day, the bottom fell out on October 15, when the Dow and the S&P suffered their second-worst declines ever. The drops of more than 9% were behind only Black Monday in 1987.  

2. Euro/Yen cross

Risk taking is certainly back to stage nowadays. But back in October, it was definitely a different world. I talked about it on October 23rd by saying “For those leveraged hedge funds, the resulting problem is probably not just a few percentage losses but rather die or survive, which causes them to dump their positions at any cost. It is no wonder that we see the euro/yen cross drop from a high of 170 to merely 120 at the time of this writing. In order to say that things are back to normal, we have to see the cross move back to at least 140 – 150 range and stay there for several days…”

We are not there yet. But we are very close. Similar to the VIX index above, the cross also bottomed the very next day at 111 and it moved steadily up after that. Recently, it was hovering in the range between 135 and 138. It should be able to break 140 any time from now.

3. The TED spread

It is all started from the freezing in the credit markets. In September 2008, Treasury and Fed officials allowed Lehman Brothers to fail and officially kicked off the worst financial crisis since the Great Depression. Days following the collapse of Lehman, the TED spread soared to an eye-popping 500 bps as investors around the world pulled their money out of pretty much every asset class. I wrote on October 23rd that “Currently the TED spread is around 270 bps and the former Fed Chairman Greenspan mentioned before that if we can get the TED spread back to around 45 bps, then we can say that the credit market is back to normal”. Indeed, the credit market is much better now with the TED spread sitting right at 45 bps at this writing.

Most major sectors finished the session within plus or minus 1 percent. The CRB commodity index dropped 0.7%. The US dollar was higher against most major currencies. Treasuries were lower with the yield curved flattened. The three-month US LIBOR was unchanged at 63 bps. The VIX index was little changed. The market breath was neutral on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market closed modestly higher on Thursday after spending most of the trading sesssion in a very tight range. The Dow, at today's close price is only 16 points away from the break-even level for the year. Economic news for the session was neutral. Weekly initial jobless claims came in at 621K, in-line with the consensus estimate. Continuing jobless claims, meanwhile, unexpectedly decline from record highs and came in at 6.74 million. Tomorrow's nonfarm payrolls report will bear more interests among market participants and current market consensus is looking for a loss of around 520K jobs. Any big deviation (50K+) from that number will cause the market to fluctuate in tomorrow's trading.

Let’s take a look at the three key indicators: 1. VIX: closed at 30.11 compared to 31.02 yesterday; 2. The euro/yen cross: closed at 137 compared to 136 yesterday; 3. The TED spread: closed at 50 bps compared to 51 bps yesterday. 

Most major sectors finished the session higher led by financial and energy. The CRB commodity index jumped 2.7%. The US dollar was mixed against most major currencies. Treasuries were lower with the yield curved steepened. The three-month US LIBOR dropped 1 bps to 63 bps. The VIX index dropped 1 point. The market breath was positive on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market retreated on Wednesday after advancing for four straight sessions. Most economic reports came in-line with expectation. However, merely matching expectation is not enough for investors to push equities even higher following a 40% rally in less than 3 months. Just a quick recap of today’s economic news: The ISM Services Index for May came in at 44.0; Factory orders for April increased 0.7% while data for March were revised sharply lower; The ADP Employment Report showed 532K job losses for May, indicating we may see another half a million job losses in the non-farm payrolls report that is due on Friday. In other financial news, the Fed Chairman Bernanke testified before the Congress that large US budget deficits threaten financial stability by saying “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.” One big debate on the Street now is the speed of the decline in the dollar, which is cited as a main reason behind soaring commodity prices. Coincidentally, the dollar was bidden up today ahead of Bernanke’s comments and commodity prices also tumbled.

Let’s take a look at the three key indicators: 1. VIX: closed at 31.02 compared to 29.66 yesterday; 2. The euro/yen cross: closed at 136 compared to 137 yesterday; 3. The TED spread: closed at 51 bps compared to 52 bps yesterday.

All 10 major sectors finished the session lower led by basic materials and energy. The CRB commodity index tumbled 2.8%. The US dollar was higher against most major currencies. Treasuries were higher with the yield curved flattened. The three-month US LIBOR dropped 1 bps to 64 bps. The VIX index climbed a little more than 1 point. The market breath was negative on both NYSE and Nasdaq. The volume was lighter compared to the previous session.

The market finished the session modestly higher following yesterday’s huge rally. The S&P 500 is now up 4.6% for the year while the Dow is just inches away from turning positive. Good economic reports continued to serve as the main reason behind the rally. The National Association of Realtors said today its seasonally adjusted index of sales contracts signed in April surged 6.7% to 90.3, much better than what economists were looking for ahead of the report. In fact, it was the biggest monthly jump since October 2001. As there is a one- to two-month lag between a contract and a done deal, today’s report should give a boost to the future existing home sales. Moreover, we may see even better sales numbers in the months ahead because first-time buyers need to complete their purchases by Nov 30th to claim the new $8,000 tax credit. As we have stated many many times in the past, housing market is the key in determining the strength of the economic recovery. Even some signs of bottoming out in that area will help the broad market greatly.

Let’s take a look at the three key indicators: 1. VIX: closed at 29.66 compared to 29.95 yesterday; 2. The euro/yen cross: closed at 137 compared to 137 yesterday; 3. The TED spread: closed at 52 bps compared to 56 bps yesterday.

Most major sectors finished the session modestly higher led by consumer staple and transportation. The CRB commodity index dipped 0.2%. The US dollar was lower against most major currencies. Treasuries were higher with the yield curved flattened. The three-month US LIBOR was unchanged at 65 bps. The VIX index was little changed. The market breath was positive on both NYSE and Nasdaq. The volume was lighter compared to the previous session.

The market started the new month with a bang. By close, all three major indexes finished the session higher by at least 2.5%. Several important indexes, including the S&P 500, the Nasdaq and the Russell 2000, all broke out the best level for the year. The S&P 500, in particular, closed above its 200 day moving average for the first time since May 2008. Among the three major indexes, the Dow is the only one that is still in the negative territory for the year. Several upbeat economic reports were the main reason behind today’s broad rally. Construction spending, ISM Index, Personal Spending and Income all came better than expected. Overnight, China reported that its ISM index rose for the third consecutive month, giving a boost to commodity prices and commodity-related stocks in overseas markets. In other financial news, Cisco and Travellers will replace GM and Citigroup as new Dow components on June 8th. The former filed bankruptcy today and had little impact on overall market trading as the event had been widely expected. Although a bankruptcy filing for the once American icon has been rumoured for several times in the past, it is still sad to see it occur.  

Let’s take a look at the three key indicators: 1. VIX: closed at 29.95 compared to 28.92 last Friday; 2. The euro/yen cross: closed at 137 compared to 135 last Friday; 3. The TED spread: closed at 56 bps compared to 53 bps last Friday.

All major sectors finished the session higher led by industrial and consumer cyclical. The CRB commodity index climbed 3.1%. The US dollar was lower against most major currencies. Treasuries were lower with the yield curved steepened. The three-month US LIBOR dropped 1bps to 65 bps. The VIX index rose 1 point. The market breath was positive on both NYSE and Nasdaq. The volume was heavier compared to the previous session.