The S&P 500 is threatening to break out to a new 2012 high despite widespread doubts about the rally.
SPDR S&P 500 (NYSEArca: SPY) was on track for its sixth consecutive weekly gain in afternoon trading Friday.
Despite headlines about this being the most hated rally ever, equity ETFs continue to march higher and the VIX trading around 14 to the lowest level in five years doesn’t signal a lot of fear in the markets. Trading volume is very low even for the summer. [Volatility ETFs Gather Heavy Inflows Despite VIX Decline]
Josh Brown at The Reformed Broker blog was out with a thoughtful post this week on why everyone hates the rally. Some themes he touched on:
- The closely-watched Dow Jones Transportation Average hasn’t joined the rally. Bulls want to see the transportation index confirm the highs. [Transportation ETF Lagging]
- China markets and stocks are also not participating, Brown notes. For example, the largest ETF for China is struggling to stay positive for the year. [China ETF Performance is ‘Red Flag’ for Global Economy]
- “Too much complacency in a 14.5 VIX, last time it was here was during March 2012 topping process,” he writes. [Volatility ETFs Dragged Down by Lowest VIX in Five Years]
Of course, the Eurozone debt crisis is always lingering in the background. Investors are also very focused on the chances of more stimulus from central banks.
Thin trading volume suggests participation in the current rally is low. However, markets often climb a wall of worry, and those who are underinvested in stocks could end up chasing a breakout rally.
SPDR S&P 500
Full disclosure: Tom Lydon’s clients own SPY.