Stocks Soar on Surprising Data – Is the Rally Sustainable?
The stock market has seen a significant uptick for the second consecutive week, driven by better-than-expected data. However, the reliance on jobless claims data for this surge raises concerns about the sustainability of this rally.
As we enter the weekend, it is crucial to keep a close watch on key market indicators to assess the strength of this ongoing comeback. Here are four indicators that investors should monitor closely:
1. Volatility Index: The recent market rise may be partly attributed to options expiring, resulting in a decline in the Volatility Index. This “volatility crush” has forced many investors to close their bearish positions, potentially fueling the market’s upward momentum.
2. USD/JPY’s Recent Price Action: The stabilization of the USD/JPY and its return to the 20-day moving average could be contributing to the rally.
3. USD/CAD’s Uptrend: The USD/CAD has been on an upward trend, indicating a potential correlation with the market direction. A sustained rise in the USD/CAD could signal a reversal in the S&P 500.
4. USD/MXN: The USD/MXN exchange rate has retraced to its support level and the 20-day moving average after a significant increase. The movement in the USD/MXN serves as a risk indicator for market sentiment.
In conclusion, the recent market movements have been intriguing, with low trading volume and wide bid-offer spreads. The 1-month implied correlation index is at the lower end of its usual range, suggesting a potential market exhaustion. It is essential for investors to remain vigilant and consider the implications of these key indicators on their investment decisions.
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