The volatility has picked up here in the past few sessions after a snoozefest for most of August. It appears James Bullard's attempt to throw some cold water on the QE party helped… or the market was simply at a level it would have come in and needed a convenient excuse. We've mentioned that an oversold bounce in bonds was a likely outcome – which is happening – and we'd have to see how the market reacts to it. Thus far, pretty textbook … an inverse relationship.
While the market has been in an upward trend since early June most of those gains have come in overnight gap ups based on a comment here or a rumor there. There has been far less available to people during the actual market day.
For example, the S&P 500 was sitting at 1338 on July 25th and looked as if it could potentially fall over. The next morning news reports of Draghi saying "whatever it takes" caused a gap up and that session and the next (Thu/Fri) pushed the S&P to 1386. That was a 3.6% move in those 48 hours, much of it on an overnight gap.
The next 4 sessions the market gave back much of those gains, with most of the losses coming during the actual market day rather than gap downs. So the actual daytime sessions were quite poor. That led to the Fed and ECB meetings in early August, culminating in a selloff Thursday the 2nd of August and the S&P 500 down to 1365. After a night to re-think it traders came in the next day guns blazing and we had another gap up taking the S&P 500 to 1391, or a pop of 1.9%. There was a little pop the next two sessions to take the index into the low 1400s….. and thats where it sits now three weeks later.
So from July 25th til today, about a month later, the bulk of gains have come in 3 sessions, 2 of which were huge overnight gap ups. Most of the actual sessions in between are sideways or selloffs. Not very dissimilar to what was going on in June and the first half of July.
Speaking to individual sectors we have seen enormous weakness in Intel (INTC) the past two weeks which is causing a ruckus in the semi space, as discussed yesterday (the worst off of the 'pro cyclical' groups).
And transports, which were late to the party, are being quickly ushered right back out today.
It is definitely a Twilight Zone environment – it appears the only way to partake is to be subject to the day after day of losses and volatility knowing that the majority of gains will come from a comment here or a rumor there that causes a massive gap up. Certainly that has been the pattern since June.
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