Talk about volatility! The Fed, earnings and midterms are all playing a role in the wild swings the markets have been experiencing. Stocks continue to fly up and down as investors digest the latest news from all three catalysts. On Wednesday the Federal Reserve kept rates unchanged which was widely expected. However, earnings from some of the top companies in the world have come out and so far, it’s a mixed bag. Google (GOOGL), Amazon (AMZN) and today Intel Corp. (INTC) released their earnings and all three companies disappointed especially Intel, which lost over 25% of its value after they reported. This created additional volatility in the tech space. And then of course you have the mid-term elections on Tuesday which is yet another market catalyst. Add all of this up and it’s no wonder the VIX index (see chart here) is rearing its head up. The Cboe Volatility Index is an index that measures the stock market’s expectation of volatility, and this measure is derived from the S&P 500 index options. When the markets are going up or trading sideways the VIX is relatively stable and low. When fear sets into the markets or when markets get drawn down for whatever reason, the VIX spikes (see chart here).
Now what does an investor and/or trader do? Volatility creates opportunity and this is what I look for when vol picks up. We are smack dab in the middle of earnings reporting season and with the mid-term election coming up volatility should stick around. No question both dynamics will continue to play a role in market volatility.
As I look at the technical shape of the major averages, the Dow Jones Industrial Average (see chart here) is hovering around its 50-day moving average, not overbought or oversold. The same can be said for the S&P 500 (see chart here). However, the Nasdaq Composite (see chart here) sold off sharply on Friday due to Intel’s earnings report which sent every other tech stock tumbling, especially chip stocks. Now the Nasdaq Composite (see chart here) appears to be oversold and it closed just above its 200-day moving average. Last but not least, the small-cap Russell 2000 (see chart here) also has found support at its 50-day M/A.
Despite the volatility we are experiencing and how the Nasdaq Composite sold off on Friday, the markets overall are showing some impressive resilience.
Good luck to all 🙂
~George