Summary:
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US indices in the green ahead of Wall St open
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US100 the biggest gainer
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Market looking to recover from 8-month low near 6400 yesterday
US stocks are trading higher on the whole as the markets look to recover from another big down day to start the week. Continued fears about the health of the global economy are weighing on sentiment but the markets appear to be attempting to regain their footing ahead of tomorrow’s Fed meeting. The US100 is the biggest gainer on the day and higher by around 0.7% at the time of writing. Monday saw the market fall to its lowest level since April but we have seen buyers step in, albeit tentatively, around the 6400 mark.
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The outlook for the global real economy is at its most pessimistic since October 2008 according to a recent survey of fund managers. This means quite a lot of bad news may be already "baked-in". Source: BofA Merrill Lynch Global Fund Manager Survey
Price is down by more than 10% from the high seen a fortnight ago when the markets gapped higher following the Trump-Xi meeting and the sentiment seems to have soured significantly since then. There‘s a lot of pessimism around at the moment and it wouldn’t take too much for some of this to lift, with a dovish shift in the Fed possible tomorrow. Should we get that then there’s scope for a relief rally into year end with recent low of 6400 now seen as potentially key support.
The US100 has found some support around 6400 after heavy recent declines. Positive divergence on the RSI could be seen as encouraging for longs and as long as this level holds then there is scope for a recovery ahead. Source: xStation
One interesting aspect of the recent trade in equities has been that volatility has been relatively low, especially when you consider the declines seen in stocks. The volatility index (VOLX on xStation) is at elevated levels but still trades with a 21 handle and is not only comfortably below the high seen in October, it is also beneath the high seen just last week! This shows that while stocks have been declining, and we’ve had some sizable daily drops, that there’s not too much panic out there yet. There’s two ways of viewing this; either the market is quite calm despite the price dropping back near its yearly low or it is underestimating the risk of a large sell-off. In the next few days, we could well get the answer to this conundrum.
The Volatility index has been relatively muted given the falls seen in the stock market. Is this a sign that there’s not too much to worry about or is the market underestimating the chances of a larger flush lower? Source: xStation
