After a roughly 15% rally in many of the major indices since the October lows, crashing Oil, as well as general geopolitical tensions have put the brakes on the rally, and we are now 3% off highs in the SPX, over 6% in the FTSE100, 4% in the Dax, to name a few. With WTI OIl trading below $60/barrell, basic material Stocks and Commodity stocks as you would expect have been hit hard, and whilst cheap Oil is good for our pockets, its effect on the Stock Market is being felt with the Energy Sector dragging down the overall market.
On Wednesday the SPX fell 33 points, and the Nasdaq dropped over 60 points, which was the biggest sell off since October, but what was different was the price action yesterday. The SPX and Nasdaq jumped 28 points and 60 points respectively off the open, and it seemed like it was your usual rally after a sell off, the price action was very similar to previous days too, where every down tick was met with a barrage of buyers. Now the theme for the past two years has been that when ever there is a big up move, it usually sustains it but yesterday we witnessed a 20 dollar drop in the SPX and 50 point drop in the Nasdaq in the last couple of hours, to still settle up on the day but way below the highs, and this was enough to install quite a bit of fear into the market.
The VIX, the volatility index on the SPX ended up the day over 8%! Heres what's interesting, not once in the last 5 years has the VIX been up on a day when the SPX has been up, let alone up 9 points on the day, is this a freak event, a so called black swan event?
What can you infer from this, well given this is the first time in 5 years such an event has happened, suggests there is alot more fear out there, everyone is expecting the Santa clause rally into the end of the year, but maybe...just maybe, the market may not play nice, and we are in for some downside. One thing is for sure, is when you move up and down in a straight line without healthy pullbacks on the way, price action is likely to be more erratic. With lower volumes going into the holidays, price action is likely to be wild!
On Wednesday the SPX fell 33 points, and the Nasdaq dropped over 60 points, which was the biggest sell off since October, but what was different was the price action yesterday. The SPX and Nasdaq jumped 28 points and 60 points respectively off the open, and it seemed like it was your usual rally after a sell off, the price action was very similar to previous days too, where every down tick was met with a barrage of buyers. Now the theme for the past two years has been that when ever there is a big up move, it usually sustains it but yesterday we witnessed a 20 dollar drop in the SPX and 50 point drop in the Nasdaq in the last couple of hours, to still settle up on the day but way below the highs, and this was enough to install quite a bit of fear into the market.
The VIX, the volatility index on the SPX ended up the day over 8%! Heres what's interesting, not once in the last 5 years has the VIX been up on a day when the SPX has been up, let alone up 9 points on the day, is this a freak event, a so called black swan event?
What can you infer from this, well given this is the first time in 5 years such an event has happened, suggests there is alot more fear out there, everyone is expecting the Santa clause rally into the end of the year, but maybe...just maybe, the market may not play nice, and we are in for some downside. One thing is for sure, is when you move up and down in a straight line without healthy pullbacks on the way, price action is likely to be more erratic. With lower volumes going into the holidays, price action is likely to be wild!