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Yesterday was the Fifteenth Day in March the Dow was Up or Down Over 100 Points.

Yesterday was the fifteenth day in March that the Dow was up or down over 100 points.

Sunday I read a provocative piece referencing several well-known analysts and a former Fed governor stating the volatility is largely influenced by program and algorithmic traders.    There is massive liquidity and some of this liquidity has gravitated into the highest and most capitalized issues.  Passive index investing is regarded as the pathways to riches where fundamental and macroeconomic research is essentially regarded as meaningless.

It was 12-14 months ago I commented the markets are becoming more and more dominated by a large fund of monies entering into one sector, bidding that sector higher and then leaving the sector for yet another, using a locust analogy.

About 6 months ago I was commenting these funds are now only gravitating to a select group of stocks that comprise the indices with all chasing returns.  About two months ago I referenced a Bloomberg wire story stating that the typical company is down about 20% and a month ago I referenced a CNBC story stating the entire return of the NASDAQ is focused in five companies.

Even the “must own” and “defensive” utilities are down about 11% from their late January apex.

Because of this backdrop, the anxiety many feel is rising exponentially with most questioning if they too should become closet indexers and forgo basic macro-economic and fundamental analysis

I experienced a similar environment in 1999 and early 2000 where everything one did appeared wrong unless one was blindly investing in the NASDAQ 100 that was dominated by the technologies.

As all know, the NASDAQ reached a peak in March 2000, a level that has not since been broached.

Will history repeat itself?  I would like to reiterate anxiety levels are rising given the lack of returns for other than “closet” indexers chasing returns.

Will today be the inverse of yesterday as the indices staged a handsome advance because China announced more stimuli?  If the trading patterns of the last 60 days are repeated, today will be the inverse of yesterday.

Last night the foreign markets were down.  London was down 0.83%, Paris down 0.23% and Frankfurt down 0.58%.  Japan was down 1.05% and Hang Sang up 0.18%.

The Dow should open about 100 points lower amid few signs of progress in talks between Greece and its creditors.  Oil fell as Iranian and Western diplomats worked towards a nuclear deal.  The 10-year is unchanged at a 1.94% yield.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.