Position traders beware! Trading volatility is ramping up. Investors shouldn’t be trying to figure out which way the market will run. Let’s look at the past week as an example. Here are the closing prices for the December futures contract for the Dow Jones Industrial Average:
Monday 9/29 16980 -50
Tuesday 9/30 16965 -15
Wednesday 10/1 16740 -225
Thursday 10/2 16724 -16
Friday 10/3 16921 +197
On Monday and Tuesday the stage was set for the bears to take control. The media reports were notably bearish. The Conference Board’s assessment of consumer confidence fell to 86.0 in September, down from 93.4 the previous month.
Then the Case Shiller report on home prices reported that seasonally adjusted prices in 20 cities fell .5% in July.
Topping the bearish news, the Institute of Supply Management’s Business Barometer fell to 60.5 in September from 64.3 in August. Expectations were for and increase to 61.9
On Wednesday more bad news. The Institute of Supply Management issued its reading on factory output. The latest September reading was 56.6, down from the August reading of 59 and lower than analysts expectations of 58.5.
Now the media is screaming-correction, correction. To add fuel to the fire they touted the Ebola scare and fears of the epidemic spreading the United States. Now the bears load up and slam the market for 225 Dow points on Wednesday. This was followed by another 16 point drop on Thursday.
These four days of selling were on top of the previous weeks sell offs. Now from the high of 17260 in the futures prices we were down 590 points. This is sellers dream, right?
On Friday, the monthly job growth numbers came out with 248,000 new jobs created during the month of September and the jobless rate falling to 5.90%. Now the bulls take command and drive the futures to a high of 17055, closing at 16921. Now the high of the day is only 205 points off the all time high. The shorts are driven back into hibernation.
What this illustrates is that this is no time to be a market guru. It is a traders game. You must be nimble and take each day as it comes with no preconceived notions as to whether the market is bullish or bearish. Look for this volatility to continue.
There are some other big plays that have been underway for a couple of months. Most notably is the strong dollar. The US Dollar index has risen to a 12 week high of 86.74 and is up 8% this year. Conversely, the Euro and Japanese Yen have nosedived. The Euro fell from a recent high of $1.40 down to $1,25, The Yen traded 109.90.
Commodities are getting destroyed, especially gold and oil. The December crude oil contract has fallen from a high of $112.24 per barrel down to a low of $88.18 per barrel on Friday. December gold fell from a high of $1383.10 to a low of $1192.10 on Friday for a loss of $191.00.
The US Dollar and commodities tend to move in opposite directions. There have been excellent trading opportunities in the currencies, oil, commodities and commodity related stocks.
One final word. Do not have a fixed mind set. It is perhaps a good time to let the market tell you where it is going. So far, major trend lines have remained intact.