Bernie Schaeffer Schaeffer’s Investment Research Inc.
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"The rally may also be benefiting from at least two virtuous circles. The first is that leading economic indicators usually include the stock market itself as a key component. Recent improvements in these indicators — the euro-zone figures rose by 1.5% in June, for example, on the back of similar increases in April and May — are in turn taken by equity investors as a bullish signal. The second factor is more technical. David Shairp of JPMorgan Asset Management says that lower stock market volatility is reducing the perceived risk of investing in equities, relative to bonds. In turn, volatility tends to fall when the stock market is rising."
(The Economist –"The stock market recovery still faces some serious tests" – Aug. 1, 2009 issue)

Schaeffer's addendum: I found the brief discussion of volatility in this article that I italicized above to be very interesting. I believe Mr. Shairp is suggesting that the reduced volatility that tends to accompany a rising stock market also reduces the perceived risk of investing in equities, which presumably attracts new money into the market, which then causes the market to rise and volatility to decline further – hence the "virtuous circle." And I'd suggest that since the perception of volatility these days is based more on the level of the CBOE Market Volatility Index (VIX) than on actual volatility measures, an unwinding of the popular "higher VIX trade" could enhance this virtuous circle, to the benefit of the stock market.

I'd also note that the rally by the S&P 500 Index (SPX) from 900 to 1,000 over the past three weeks has been accompanied by a flat VIX, due in part to the widespread conviction that volatility is "due" for a rise. Should this perception begin to crumble in the wake of a takeout of 1,000 on the SPX, the resulting unwinding of bullish VIX positions could carry the VIX sharply lower and, by implication, create further upside impetus for the market.

Bernie Schaeffer:
• Developed Expectational Analysis®, a proprietary, three-tiered method of options analysis combining technical and fundamental studies with the analysis of investor sentiment.
Publisher
• In 1981, Bernie launched the newsletter, Bernie Schaeffer’s Option Advisor. Serving as senior editor since inception, Bernie has led the Option Advisor to become the nation’s leading options newsletter. Features: market commentary, specific trade recommendations, and trading strategy.
• Launched SchaeffersResearch.com, in 1997. A four-time winner of Forbes “Best of the Web” award, the website has also received positive mention in Barron’s, AAII and The Wall Street Journal Guide to Online Investing - “An independent options site that is one of the best for providing primers for both novice and advanced investors.” Features tools, quotes, data, commentary, and education.
• 10 Days to Successful Options TradingSM – This multi-media home study program teaches options basics. Learn fundamental strategies with hands-on application exercises and examples.
Author
• The Option Advisor: Wealth-Building Techniques Using Equity and Index Options (1997)
• New Thinking in Technical Analysis: Trading Models from the Masters – The industry has viewed Bernie’s Expectational Analysis® methodology as a groundbreaking approach to trading. Proof of this came with the publication of this new book by Bloomberg Press. One of twelve authors, Bernie was honored to be chosen from hundreds of market analysts to explain his methodology.
• Writes a monthly options column for Bloomberg Personal Finance magazine.
• Multexinvestor.com regularly calls on Bernie to contribute to their “Analyst Corner.”
Awards and Recognition
• Three time winner of The Wall Street Journal stock picking contest.
• Ranks fifth among market timers tracked by Timer Digest for the past decade.
• Dick Davis Hall of Fame inductee for his bearish posture ahead of the 1987 crash.
• He is known for successfully maintaining a bullish market posture throughout the 1990s.
• The Market Technician’s Association (MTA) awarded Bernie “Best of the Best” in 1997 in the field of Sentiment/Psychological Analysis.
• Bernie is regularly featured on investment chats on Yahoo! Finance.
• Bernie’s views on the stock market and the economy are regularly quoted in The Wall Street Journal, The New York Times, BusinessWeek, Investor’s Business Daily, and USA Today.
• Both Barron’s and The New York Times have featured Bernie in “Question & Answer” interviews.
• Recognized as a CNBC “Market Maven.”
• Appears regularly on national financial broadcasts such as CNBC, CNN, Bloomberg Television, the Nightly Business Report, Wall Street Week with Fortune and Fox News. Also serves as a guest host on CNNfn.
• Frequently invited to speak at national investment conferences and seminars.
• Regularly sits on Options Industry Council panels around the country.
• One of 50 market strategists appearing in BusinessWeek’s 2001 market forecast.