StansTake

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May  18,  2010 ………. Market  Snapshot ………STP-096

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Basic Data for the Week Ended: .May 14, 2010

1 Mo Change ………YTD Change

DJI Ave: 10620 ………………….- 3.6% ……………. + 5.5%

NASDAQ: 2347 ………………… - 5.4% ……………..+ 3.4%

Oil (NYMEX): $71.6/bar ………- 13.9% …………… – 8.7%

Gold (COMEX): $1,227 ……….+ 8.0% ……………+ 12.1%

10-Yr T-Bond Yld: 3.44% …….- 0.33% …………. – 0.39%

Euro (in US $): 1.238 …………..- 8.4% ………….. – 13.5%

Recent Activity

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Ever since the “flash crash” on May 6, 2010, when the DJI Average dropped almost 1,000 points in about ten minutes, world markets have shown greatly increased volatility. As measured by the popular VIX index, volatility recently rocketed up to over 40. It closed on May 14th at about 31. (A reading below 20 is considered “normal”, i.e. — not very volatile.)

The cause of the confusion and the chaotic markets we are witnessing is the ongoing European debt crisis. The pessimists feel that the debt problems of Greece, Portugal and Spain may be contagious to the other members of the European Financial Community. These problems could stymie GDP growth in Europe which, in turn, would affect world economic growth. All of this is reflected in the steep fall of the Euro — now down about 13% against the dollar since the beginning of the year. See table above.

Investors in the optimistic camp feel that the $1 Trillion commitment made a few days ago by the European Bloc nations and the International Monetary Fund (IMF) will do the trick and stabilize the European economy. In addition, they point out that the U.S. economy, still the world’s largest, is on track for economic recovery in 2010 and beyond. The clash of these two investing factions, plus the large amount of high-frequency trading done today, is causing all the confusion and greatly increased market volatility.

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Source:  Yahoo! Finance

Short Term Expectations

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High market volatility is likely continue over the next several weeks. More economic data is needed to flip the Fear vs. Greed balance in one direction or the other. The DJI Average appears to be caught in a broad trading range between 11,200 and about 10,400. (See DJI chart above.) These are the key levels we will be monitoring to determine if a nasty correction of 10% or more is likely or rather a resumption of the 14-month long bull market.

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Intermediate Term Expectations

Beyond the short term, we expect that market volatility will decrease as we enter the quieter summer months just ahead. The huge, $1 Trillion European bailout has purchased needed time to stabilize the European markets. In the meantime, the driving economic engines of the U.S., China, Brazil, and India will continue to provide steady, forward economic momentum. These countries currently have expected 2010 GDP growth rates of about 3%, 8%, 5%, and 6%, respectively. As a result, we envision that the DJI Average will break out of it’s trading range on the Upside in the next 2-3 months and continue it’s bull market run well into 2011.