These are possible signs that a correction is at hand. Good earnings results from IBM and GE have helped to drive the DJIA higher, but the small caps and techs are struggling. We are well into the earnings season, and while many companies have reported strong results, margin pressures are rising (mostly due to rising commodity prices), and this could put a damper on future earnings growth. At the same time, we are witnessing inflation fears spread in the emerging economies. The emerging countries have begun to tighten their monetary policies (both China and India of late) to rein in inflation. This in turn could slow global growth,which is one of the main drivers needed to help our own recovery. We have reduced exposure to the emerging markets across the board and remain largely in cash. We are also keeping a close eye on the VIX (Volatility index). The VIX index is trading at levels that suggest complacency. If you look at the VIX chart below you will see a triple top at 18.5. If we get a move in the VIX to 19, that would be another sign of caution. If we do get a correction we will be well positioned to buy on the pullback.
CHARTS OF INTEREST
VIX...breakout at hand?
DJIA ...new highs, will they continue?
Russell 2000 Index ( not performing as well)
Nasdaq 100 Index also showing relative weakness
