Volatility, 2012 and “Red Blooded Risk”

The U.S. markets remain the most overbought in the world with the 2-period RSI of the SPY at 97.79 and at 98.49 for the DIA. The only major Country Fund ETFs above the 200-day are the major U.S. indices.

Most of the world is waiting for the news from the 10th (or is it the 11th?) summit out of Europe this year and, once this is completed, the sideways movement the market has seen all week will soon lead to a one-way, breakout move. Whether or not that move is sustained will have to be seen because as we’ve seen all year, the major averages and most industries have remained in one large trading range. As one Daily Battle Plan reader pointed out to me last night, the media likes to hype the volatility but in reality, most of the major averages and industries are plus or minus a few percent for the year and are trading near their 200-day moving averages. In my opinion, 2012 will be a very different year and, with the election less than 11 months away, we can expect markets to move substantially.

P.S.: I have a book recommendation for everyone. Red Blooded Risk: The Secret History of Wall Street by Aaron Brown is a book on investing, risk and the markets.

Aaron is a manager for AQR, a tremendously successful quantitative investment firm. As one reviewer recently wrote, Aaron lays out a convincing case that investors should spend much of their time looking for attractively priced “lottery tickets” – potential exponential growth that is underpriced by the market.

I know a few of the senior people at AQR and I hope to have the opportunity to get introduced to Aaron for an interview so we can all learn from him. In the meantime, enjoy the book (it’s the real deal).

Red Blooded Risk: The Secret History of Wall Street

The above is from Larry Connors’ Daily Battle Plan.

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Larry Connors is founder of TradingMarkets.com