The picture is starting to improve in the US, with unemployment falling and Obama getting aggressive on improving the economy, the market is reacting positively.  Also, the lack of any more horrific news in Europe is also having a positive effect.

Although how long Europe will remain quiet is another story.  Greece is wandering towards disorderly default, but Italy is the big scare at the moment.  Angela Merkel’s rallying cry that more needs to be done in Europe to stimulate the growth of the faltering countries is the right thing to do, lets see if any real action follows.

But at least for now the U.S. stock markets are rallying and volatility is moving to down to the 2011 and 2010 lows.

U.S. Stock Market Breakout

S&P 500 – Ticker:SP-500; Dow Jones Industrials – Ticker:DJ-30; Russell 3000 – Ticker:RUA-X.

Here is a chart of the SP-500 featuring the recent breakout of the ascending triangle formation.

Telechart Image Courtesy Worden Brother Inc. Telechart 2000 Our Recommended Software

The break out of the ascending triangle is a classic pattern with 5 bounces off the triangle then a break through the 1280 mark.  All this on moderately increased volume suggests some increased buying into this rally.

VIX Volatility Decreasing Is An Encouraging Sign

Volatility can be easily measured using the Chicago Board Of Options Exchange (CBOE) Market Volatility Index (Ticker:VIX).

Telechart Image Courtesy Worden Brother Inc. Telechart 2000 Our Recommended Software

The CBOE VIX shows the markets expectations of the 30 day volatility of the S&P 500.  It is calculated using the implied volatility of a broad range of S&P 500 Options contracts.  Calculated from both calls and puts, this is a widely respected gauge of investor sentiment.

A number above 30 usually implies a lot of volatility, meaning a lot of FEAR & GREED in the market.  A number below 20 implies a calmer market.  A calm market is usually an increasing market, see for example the down trend in the VIX from 2003 to 2007, this correlates to the uptrend in the market through this period.

In this weekly chart of the last 8 years you can see at times of market panic (the 2007/2008 financial crisis) there was a massive spike in volatility.  The figure today is at 20, suggesting that, for now, the market is calm and attempting to eek out regular gains.  How long this will last is anyone’s guess.