See Behind
The Spin

Stock Market Report

Don't Be Fooled By The Summer Rally

by Oliver Silverstein

August 11, 2008

Complacency reigns.

 

The VIX today dropped under 20, reaching an intraday low of 19.66. After being up over 30 earlier this year, that's quite a settling down of investor's nerves.

 

Now that investors are relaxed and absent of fear, you would guess that the worst is behind us.

 

That would be 100% incorrect.

 

This summer rally that has carried the S&P500 from an intraday low of 1,200.44 just under a month ago (July 15th to be exact) to today's intraday high of 1,305.32 has convinced many traders that the economy's problems are contained and that the selling was overdone.

 

Nothing makes people believers in economic strength like a rising stock market.

 

Unfortunately, this rising stock market over the past month is no sign of underlying economic strength.

 

The rising stock market is simply a sign of... rising stock prices.

 

And stock prices are NOT rising because of underlying strength in our economy and financial system.

 

Multiple sources are reporting the exact opposite: rapid deterioration in both.

 

Trading volume is typically slow in the summer months. It doesn't take much buying to create a rally.

 

The stock market is rallying because it can. Very, very soon events will unfold that will overwhelm this rally.

 

Watch and see.

 

 

 
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