Whipsaw action is sending equity indices on a wild ride on Tuesday. As the bulls battle the bears US stocks have opened trading a wide range. The Dow had moved through 934 points early on as investors were keen to pick up bargains but fear that it is still too early to call the bottom.
The Dow fell 594 points on the open, moving into correction territory, a 10% decline from its recent high just two weeks ago, before charging some 350 points higher, only to fall back again, to its current level of down 114 points or 0.47% on the day The trading ranges that have been playing out on Wall Street and on European bourses are at levels not seen since 2015.
The CBOE volatility Index, also known as the VIX, or fear gauge remains at elevated levels on Tuesday spiking to 50 before retracing back to 40, and increase of 7% on the day. Stepping back from the trading ranges and looking at the levels that Wall Street is trading at and suddenly it is possible to gain some perspective on the numbers. The Dow is at 24,423 (now up on the day) trading at a level that was last seen just two months ago.
This sell off has been a technical phenomenon, there has not been a change in fundamentals. Right now, this is offering little comfort to traders looking to buy the dips and being wiped out by automated selling.
Gold and yen suggest this is not a risk off event
However, we are seeing a market re-evaluation of future US inflation and interest rate levels. Interestingly we haven’t seen any major shifts in the price of gold, suggesting that traders are not feeling this as a major risk on/ risk off event.
Furthermore, the USD/JPY is also holding up well around 109, in times of risk aversion we would expect this pair to fall lower, with 107 ring market as a level of concern. The FTSE is still trading some 125 points or 1.7% lower as we move towards the close.
Since the US open, the FTSE rebounded off 7255 back to 7200, where it continues to trade. The DAX is also looking to close some 2% lower. Whilst it is extremely difficult to predict where the markets will go from here, we don’t expect this speed of fall or these levels of volatility to continue for long.
BP declines despite almost doubling profits
With stocks so heavily in the red, corporate updates didn’t appear to make much difference to individual stocks. BP still managed to lose ground despite reporting a hike in profits to £1.5 billion. On any other trading day this would have pleased investors immensely, but with so much else to focus on, investors have barely given it a second glance.