Did We Just See the Return of Volatility?
Want to Kick Your Options Trading Up a Notch?
My buddy Doug Robertson is hosting a FREE options trading webinar this Thursday where he’s teaching his secrets for generating major options profits in volatile markets.
Click here for more information
By Michael Comeau
1) The Return of Volatility
Over the past two weeks, market volatility collapsed as the S&P 500 made a succession of all-time highs within an extremely tight trading range.
And in fact, the S&P hasn’t had a real down day since June 27, when it fell -1.8% in the aftermath of the June 24 Brexit vote.
The zero-volatility trend felt like it started to break today as the index dropped as much as -1.1% intraday before finishing at 2156.2, down -0.7%. The Nasdaq Composite and Russell 2000 showing even bigger losses as traders cut down risk.
Japan set off the selling by announcing a much smaller-than-expected increase in government spending, which sent the yen higher and global equities lower.
The yen is seen as a key safety asset, and thus it tends to rise when markets are uncertain.
But that wasn’t the only issue today…
2) Oil, Economic Data, Banks
Crude oil gave up an early gain to slide back below the $40/barrel mark, which means it’s nearly 25% off the highs.
Given that crude oil’s ascent was a major driver of equity market sentiment in the rally off the February 11 lows, a fast drop down can’t be good.
We also saw some disappointing economic data, with Personal Income and PCE Deflator numbers missing expectations.
This followed Friday’s lousy GDP report, which ended a pretty impressive streak of economic data beats.
And finally, Germany’s Commerzbank lowered its full-year earnings forecast, with its stock dropping -8.5% intraday to a 24-year low.
That put a chill under US banks.
3) So What’s Next?
The pickup in volatility is a good thing, because it means fear is coming back into the market.
That could be exactly what we need to reload for another leg higher following this sideways consolidation.
But near-term, there’s a decent chance the market goes nowhere until Friday, when the eagerly-awaited July nonfarm payrolls report hits.
Traders’ rate hike expectations have been declining since Friday’s GDP report.
But strong jobs numbers could flip that around in a jiffy, which could send positive reverberations throughout global markets, which is exactly what we saw last month.
Wednesday Preview
US Economics (Time Zone: EDT)
07:00 MBA Mortgage Applications (7/29): prior -11.20%
08:15 ADP Employment Change (Jul): exp. 170k, prior 172k
09:45 Markit US Services PMI (Jul F): exp. 51, prior 50.9
09:45 Markit US Composite PMI (Jul F): prior 51.5
10:00 ISM Non-Manf. Composite (Jul): exp. 55.9, prior 56.5
10:30 DOE U.S. Crude Oil Inventories (7/29): exp. -2000k, prior 1671k
10:30 DOE Cushing OK Crude Inventory (7/29): exp. 275k, prior 1110k
10:30 DOE U.S. Gasoline Inventories (7/29): exp. -1000k, prior 452k
10:30 DOE U.S. Distillate Inventory (7/29): exp. -500k, prior -780k
10:30 DOE U.S. Refinery Utilization (7/29): exp. 0.00%, prior -0.80%
10:30 DOE Crude Oil Implied Demand (7/29): prior 16713
10:30 DOE Gasoline Implied Demand (7/29): prior 10250.9
10:30 DOE Distillate Implied Demand (7/29): prior 5122.4
Global Economics
04:30 GBP Services PMI
21:30 AUD Retail Sales m/m
Earnings
Before the Open:
3D Systems (DDD)
Charles River Laboratories (CRL)
Humana (HUM)
After the Close:
Albemarle Corp (ALB)
Allstate Corp (ALL)
Continental Resources (CLR)
J2 Global (JCOM)
Oasis Petroleum (OAS)
Tesla Motors (TSLA)
100% FREE eBook
Learn powerful concepts from the $795 Trading the Pristine Method Course.