A bullish reverse “Head & Shoulders” pattern appears to be developing on the CBOE S&P 500 Volatility Index (VIX) suggesting that a sharp move higher in this index is likely to occur soon. While bullish for buyers of “volatility”, this pattern is clearly bearish for the S&P 500 Index, since there is a high inverse correlation between the two.
Thursday night’s revelation of J.P. Morgan’s unexpected “hedging” loss of roughly $2B, along with worries that similar losses could be present on the balance sheets of other big banks has clearly moved to the “front line” of investor fears. The impact of last week’s European elections and the policy shifts that they imply, have also altered the uncertainty factor that trouble investors.
A series of sub-par trading sessions (volume wise), a cloud of relative indifference to either good or bad news, and the sense that investor confidence is eroding again has resulted in a period of “range trading” in recent weeks, despite higher-than-expected consumer confidence readings.
A decline in commodity prices along with persistently low 10-year Treasury and Bund yields might be viewed as evidence that capital is shifting away from risk assets and into assets that are perceived to be “safe”. While the “safety” issue is debatable, the expectation for another round of quantitative easing is growing. Before such an announcement could be made by the Federal Reserve, however, a broad based selloff in equity prices might occur first.
No comments:
Post a Comment