It’s been another very dramatic week in the markets, which has once again seen volatility spike higher and seen some of the largest daily swings in the stock indexes. The early panic for stocks sent them tumbling lower but go on to make partial recoveries by the end of the week. The trend continues to be down for stock indexes. The trend also continues to be down for the US dollar and is still mixed for commodities.
Over the past couple of weeks we have been writing about the large head and shoulders top formation on the S&P 500 and the likely downside target of 1125. That target was hit and exceeded this week and included a one-day decline of 6.66% for the S&P, which was the largest daily decline since the Lehman collapse in 2008. We then saw the September contract fall to 1076.2 on Tuesday before mounting a rec overy of 4.74%, which was the biggest one-day gain since 2009. Moves of this magnitude are clearly not the norm and volatility may remain high in the short term so we may see further wild swings in the week ahead. The VIX rose to 48 on Monday, which was the highest reading since the second quarter of 2010, and just shy of that high at 48.20. To see higher VIX levels than 48.20 we need to look back all the way to the March 09 highs, which coincided with the March 09 stock market lows.
The trend still remains down for the S&P 500 and we may now have seen a major top in this market at the April highs. Volatility may remain high in the short term so we may see further wild swings in the week ahead.
September Crude declined all the way to $75.11, which is the preferred OPEC level of $75. We then saw a strong rally but the black gold was still down for the week and the trend re mains down.
December gold rose to new all time highs this past week, clearing $1800 for the first time. The CME then changed the margin requirements and some selling followed. Irrespective of this the trend is still very much up and the long-term trend still only looks to be heading in one direction.
We wrote last week “As a general rule, the dollar comes into favour during times of crisis. This is primarily because it is the world’s reserve currency and is perhaps erroneously viewed as a safe haven.” The dollar benefited early in the week from all of the panic that was evident in many markets and moved higher on its perceived safe haven status. Then dollar strength reversed as the equity markets rallied. The dollar index traded within a relatively tight trading range considering all the volatility elsewhere. The higher risk currencies of Australian, Canada and New Zealand all suffered early in the week but there was some recovery seen by the end of the week.
Interest rate futures
Interest rate futures continued higher early in the week as yields fell to new record lows after the Federal Reserve pledged to keep interest rates at record low levels for another 2 years. Yields did however rise towards the end of the week as an auction of 30 year Treasuries was not well received and prices subsequently fell. The trend however remains up across the sector.