UPGRADED TO A CATEGORY 2 STORM WARNING
Given the recent frenzy of tropical storms that ravaged Texas, Florida and Puerto Rico, the current dynamics of equity markets are drawing a corollary to natural destructive forces. Roughly 3 weeks ago, I wrote of the appearance of short-term volatility risk signals...
http://tancockstradingblog.blogspot.com/2017/11/technicals-highlight-short-term.html
Following that post, markets did experience a brief round of volatility as the VIX spiked close to 60% in the 8 days of trading that followed. However, in the scheme of things, the move was somewhat muted as broader indices suffered from the albatross of lateral movement in the tech sector. After churning through high variance, techs resumed their march higher in the subsequent 8 days of trading and it seemed as though the storm had passed.
This market action was akin to a category 1 hurricane warning and getting a tropical depression... not as bad as it could have been but there was definitely some clean up required.
I don't use this metaphor to make light of the tragic circumstances that continue to affect so many Americans, but to give some context to our current situation.
After today's market action, volatility risk signals are now officially flashing red as technical factors are signaling greater systemic risk. On the surface, things weren't that bad... the S&P was down a mere 6 basis points and fresh off another break-out session yesterday.
However, sector performance was markedly mixed today as financials got a boost from the prospects of a December interest rate hike while tech stocks got smacked. The Technology ETF, XLK was down more than 2% today and it - and 3 of the big 4 (AAPL, AMZN, FB, MSFT) plus GOOG - closed below support in a newly minted bearish technical pattern with the next support level more than another 2% and 3 ATRs down.
Given the strength of the tech sector on the broader market, I would say that systemic risk has been upgraded to a category 2 level... the only thing that remains to be seen is if it makes landfall.
Given the recent frenzy of tropical storms that ravaged Texas, Florida and Puerto Rico, the current dynamics of equity markets are drawing a corollary to natural destructive forces. Roughly 3 weeks ago, I wrote of the appearance of short-term volatility risk signals...
http://tancockstradingblog.blogspot.com/2017/11/technicals-highlight-short-term.html
Following that post, markets did experience a brief round of volatility as the VIX spiked close to 60% in the 8 days of trading that followed. However, in the scheme of things, the move was somewhat muted as broader indices suffered from the albatross of lateral movement in the tech sector. After churning through high variance, techs resumed their march higher in the subsequent 8 days of trading and it seemed as though the storm had passed.
This market action was akin to a category 1 hurricane warning and getting a tropical depression... not as bad as it could have been but there was definitely some clean up required.
I don't use this metaphor to make light of the tragic circumstances that continue to affect so many Americans, but to give some context to our current situation.
After today's market action, volatility risk signals are now officially flashing red as technical factors are signaling greater systemic risk. On the surface, things weren't that bad... the S&P was down a mere 6 basis points and fresh off another break-out session yesterday.
However, sector performance was markedly mixed today as financials got a boost from the prospects of a December interest rate hike while tech stocks got smacked. The Technology ETF, XLK was down more than 2% today and it - and 3 of the big 4 (AAPL, AMZN, FB, MSFT) plus GOOG - closed below support in a newly minted bearish technical pattern with the next support level more than another 2% and 3 ATRs down.
Given the strength of the tech sector on the broader market, I would say that systemic risk has been upgraded to a category 2 level... the only thing that remains to be seen is if it makes landfall.
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