Is it time to start worrying about the positive sentiment from investors? With the fiscal cliff worries off the table investors have been content to put more money to work in risk assets. Is this reason alone to be worried? Without a wall-of-worry to climb for investors, does the market advance to fast or too high? Sounds like I am making this up doesn’t it? The reality is analyst are worried about this very issue currently. B of A Merrill Lynch strategist even published a research paper on this very topic on Thursday. The reality is many analyst don’t like it when things seem too good to be true. Thus, we create worry over investors not being worried! If nothing else it makes for a good topic to discuss over a beer.
The energy sector got a boost today from higher oil prices as crude broke above resistance at $93.50 and Chevron boosted guidance on earnings for the fourth quarter. In their release they stated that high prices and higher production were part of the reason for the gains. XLE, SPDR Energy ETF moved back above the $73.25 resistance level and is back in position to move higher again. Another benefactor of higher oil prices has been the oil services sector (IEZ) which is attempting to break to a new high as well. Tesoro (TSO) jumped more than 5% on Thursday to lead the sector.
The flu outbreak is making headlines across the country as record numbers of cases are being reported. This is the worst in more than a decade for the flu. The benefactors are likely to the healthcare providers (IHF) and the drug manufacturers (IHE). The higher demand will increase revenue for many in the health field. The loser could be the economy with lost productivity which will hit companies with absentees due to the flu from employees. Corporations may see higher healthcare costs due to the medical benefits paid out. This issue is something to watch going forward.
Europe remains on an upward trajectory. Since the low in November IEV, iShares S&P Europe 350 Index ETF has been moving higher. Thursday the ETF hit a new 52 week high and our target remains $45.50. The European markets continue to prove me wrong on the fundamental weakness. The money supply has been the driver much like the US. This has pushed the index higher and still provides plenty of upside opportunity short term. Italy (EWI), Spain (EWP), France (EWQ), Germany (EWG) and other countries have risen to new 52 week highs as well. The upside remains in play and we will have to hold our nose and jump in as the move on Thursday validates the next leg higher.
What about the lack of volatility? The VIX index moved below support of 13.8 on Thursday to close at 13.5. The lack of anxiety by investors is obvious, but we still have to be mindful of the potential risk on the horizon. As with any trend in the market, you ride if for as long as possible, but be prepared to head for the exits if the trend shifts short term. VXN index for the NASDAQ is in a similar situation testing support at 15.9 currently. The low in August and September was near the 14 mark and leaves some room for the index on the downside relative to volatility. The bigger issue is one of complacency towards the markets going forward. Until which time fear creeps back into the market the buyers are firmly in control for now. As stated at the beginning of my notes today, worry is growing because there isn’t any worry… go figure!