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Early in May, the S&P 500 slipped below its 50-day moving average. The selling continued and the 200-day moving average was violated two weeks later. The month ended up being the worst since February of 2009. Only the Nasdaq remained positive for the quarter and all indices closed May at a loss for the year. The trailing-twelve month gains also took a big hit, losing an average of 43%.
May's volatility index's (VIX) average almost doubled from 17.4 to 32. Surprisingly, the VIX reading was higher on May 20th approaching 46, than it was on May 6th, the day of the infamous "flash crash," when it registered only 32.
By the way, congress and the SEC continue to look for someone to blame for what happened on the 6th. I don't believe they'll find anyone. The "million vs. billion" theory on futures contracts is bogus for several reasons, two of which are: 1) orders are not entered that way; and 2) I believe the largest single-ticket quantity allowed is 2,000. The thought that Black Swan author and hedge-fund advisor Nassim Taleb had anything to do with it remains to be proven.
I think simple supply and demand was at the heart of the issue. The high-frequency-traders, who help provide liquidity to the markets backed off when they saw the steep decline in prices as folks started dumping stocks. The only open buy orders left were those placed by bottom fishers at ridiculous prices as low as $0.01 per share. Most of those crazy trades were busted by the exchanges later, but it certainly made for an exciting day.
The indices are trying to break out of a short-term trading range. They may go up or down from here, but the persistently high volatility numbers could mean more big swing days ahead before a longer-term trend's direction is obvious. The current sentiment is bearish as the intermediate-term downward trend continues.
In terms of the super-long-term (20- and 40-month) moving averages, all three indices are above their 20-month moving averages, which are increasing, and below their 40-month moving averages, which are declining. The last time we were in a similar technical situation was late 2003 through most of 2004, from which eventually emerged a nice, long-term rally that took us all the way up to the peak in late 2007.
Last week's employment numbers came out well below analysts' expectations of 540,000. 411,000 of the 431,000 jobs created were part-time census workers. While I expect some significant revisions to that number next month, it does indicate that this recovery continues to be quite weak. Fed Chair Bernanke says we will avoid a double-dip recession, but calls for a quick, v-shaped recovery have all but subsided.
The unemployment rate dropped from 9.9% to 9.7%, but that was not particularly good news as the data reflected some 322,000 workers dropping out of the labor force. Most analysts think hiring will remain weak through the summer. March and April numbers were revised lower, and among all industries, 54% were hiring, down from 67% in April.
Gold continues to rise on fears of inflation that is still largely non-existent. Problems in Europe and now China are propping up the dollar despite the huge deficits the US continues to carry and extend. I still believe the dollar looks pretty horrible long-term, but once again we find ourselves looking at a "least-worst" description and considering that good. I understand the optimists desire to find the good in any situation, but I don't think "least-worst" is something to rush out and buy.
Since I went so long last month, I'll take it easy on you all this month. I will comment, based on observations made on our wonderful family vacation last week that despite all my complaints about how this country is being run, we are in much better shape than most. Jamaica in particular was quite different than it was 20 years ago when my beautiful, blushing bride and I honeymooned there.
Yes, the same bouncy reggae music was blaring from speakers in every store, pavilion and taxi cab, but the joy and easygoing demeanor of the locals I remembered was not to be found anywhere, having been replaced by a sense of almost sad desperation. I've never personally experienced a country's economic collapse, but I think they may be on the verge.
We'll review things again in a month. I'll spend this month, and hopefully a lot longer being thankful for all I have and a little more generous. In spite of the fact that there are many around me who are blessed to have much more than I; there are many, many more that have much less, and hope doesn't do much to fill an empty stomach.
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