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Are Investors Immune to Congressional Bickering?

U.S. stock market remains stuck near all time highs


The U.S. stock market and its major indexes drifted sideways for yet another week as economic reports were mixed and the clock ticks towards the sequestration deadline of March 1.

Stock market participants remain complacent as VIX, the CBOE Volatility Index, remains near historic lows and major indexes remain overbought.  The next two weeks are likely to provide a catalyst, one way or other, for future directional moves.

Low VIX Value=No Worries?

VIX ETFs lost more ground last week as the VIX lost 4.30% to close at 12.46 while the iPath S&P 500 VIX Short Term Futures ETN (NYSEARCA:VXX) lost 4.46%. 2013 has not been a good year so far for the VIX, as the VIX Index and VIX ETFs have not been able to break the ’15′ barrier since the New Year, suggesting that investors are simply not scared of what could happen come March 1, when multiple spending cuts are scheduled to kick in.

Perhaps investors are becoming immune to Congressional bickering or perhaps there really is nothing to be afraid of right now.  However with declining volume and momentum, the market has been trapped in a tight trading range, and so it appears that equity investors are starting to get the big picture, perhaps suggesting that the VIX might finally make a rebound if things get really ugly.

Market Is Elevated, but Who Knows What the Correction Will Look Like

Click to Enlarge
In the chart at right, we can see the percent of stocks above their 200 day moving average and how the stock market is currently at elevated levels which have proven to be tops before a number of both mild and as well as significant declines.

Major declines associated with current levels include a 17% dip in 2007, a 15% slide in 2010 and an 18% drop in 2011, all occurring within the space of three to six months.  Of course, no one can forecast if, when or how deep such a retrenchment might be, however, it will take a powerful catalyst to push the stock market higher from today’s overbought conditions.

For the week beginning February 18, Wall Street Sector Selector will hold its position in ProShares Short 20+ Year Treasury (NYSE:TBF)from $29.62.

Wall Street Sector Selector is “yellow flag” mode, expecting sideways action/consolidation/correction ahead.

Disclaimer: VIX ETNs are extremely volatile and can easily sustain large gains or losses. Risk management and position size are extremely important. Read the prospectus to understand the potential risks and rewards. It is possible to lose your entire investment. The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector’s Disclaimer, Terms of Service, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.

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