The Morning Hammer: Round 2 for the Bears!
Friday was the first -1% down day in the SPX since June 27 — and it was an ugly one.
The SPX and Nasdaq each fell -2.5% while the Russell 2000 dropped -3.1%.
And the VIX spiked an incredible 40% to 17.56.
Many traders blamed the initial weakness on hawkish comments from Boston Fed President Eric Rosengren, who is a voting member of the Federal Open Market Committee.
That obviously impacted the lousy action in US Treasuries and gold, but didn't seem to fully explain the broader downturn in the market.
Crude was slumping and the ECB disappointed, but to me the real factor was time.
Volatility is mean-reverting and after an extended period of failures, the bears were due for a victory.
The news is the justification after the drop — not the cause of the drop itself.
As my friend Jeff Cooper says, “the news breaks with the cycles.”
We're seeing some follow-through this morning.
European and Asia markets are off.
WTI crude is down -2.4% to $44.80, breaking its 50 day moving average.
The yen is soaring.
German bunds and US Treasuries are falling.
Gold is getting hit.
SPX futures are down -0.7%, which doesn't exactly spell disaster, but it's clear that traders are feeling very, very spooked about what's to come this week.
SPX sliced through the key 2147 level Friday, and it's below the 20/50 day moving averages.
The 200 day is below at 2057. The 2090-2120 range looks key short-term.
I really wonder what happens at the open: I wonder if traders will dump in the hopes of avoiding a catastrophe.
Full disclosure: I have a position in VIX calls and that makes chaos my friend.
Traders seem to be worried about Democratic Presidential candidate Hillary Clinton's pneumonia scare, which could presumably help Donald Trump's chances.
In fact, the Mexican peso, which has been tracking Donald Trump's perceived odds of winning, is down on this news today!
BofAML actually issued a note today saying the market is not paying sufficient attention to Trump, who has been moving up in battleground states.
The market is largely assuming a Clinton victory (which partially explains the weakness in biotech).
I believe Trump has a better chance of winning than most people assume, and I would not count him out until the votes are tallied.
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