In the past few months, the
amount of volatility in the market has gone up. This month alone, the CBOE
volatility index has gone up from about 16 to the current 21. Even without the
VIX, it is clear that the markets have become volatile. For example, yesterday,
the Dow began by shedding almost 50 points. It then extended the losses to more
than 500 points before closing in the green. This has happened repeatedly in
the past few trading sessions.
The reason for this volatility is
the amount of news that is hitting the market. In October, the talk was about corporate
earnings when most companies lowered their forward guidance. This week, it is
all about Brexit, Huawei, Apple, and economic data. On Brexit, Theresa May was
forced to postpone the vote yesterday after realizing that she did not have the
required votes. On Huawei, the company’s CFO remains being locked up in
Vancouver as she fights extradition charges. On Apple, the company was dealt a
blow by a Chinese court that banned sales of its iPhones in China. On economic
data, the market continues to receive weaker data from around the world. On
Friday, the US released weaker jobs numbers and yesterday, it was revealed that
the UK economy expanded at a slower rate than traders had expected.
There are a few bright spots in
the market. Last week, Federal Reserve officials said that there were chances
that the quarterly rate hikes will stop in the coming year. This will get rid
of the fear of future interest rates. Another spot is on the price of crude
oil. Generally, lower oil prices is usually viewed as being a positive for the
world. The prices are now close to the yearly low after rising to multiyear low
just a month ago.
The chart below shows the
performance of the Nasdaq index in the past few days. Yesterday, the index
dropped to a low of $6540 before starting to move up a bit. It closed the day
at $6710. The RSI has moved from the oversold level of 30 to almost 60 at the
yesterday’s high. The volatility will likely continue in the past few days as
traders receive economic data and direction from the Federal Reserve.
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