I was looking for volatility over the northern summer months, but it didn’t have to start with such a frenzy. So now my worry is…… is this sharp break across all markets more than the volatility I had in mind? All about currencies of course with another “Euro” crisis. Interest rates were sharply lower in the US and the US dollar higher leaving a trail of red ink across many commodities. Gold held reasonably well.
One of the concerns I did have when I wrote my notes on Monday was that I felt sure that 7903 on the FTSE hit last week was the top. Normally individual markets don’t top out on their own – usually there is a common thread through all markets. Was London in fact signalling much more than just a correction around the world? And just another point – London topped first in 1987 – that is the problem with being around these markets for so long – we have seen it all before!
And do you want something to really worry about – of the nine sectors that make up the New York market, the biggest fall was in XLF (Financials). This ETF got back to around the lows of this year before rallying in to the close. However, to try and get some balance, the low on the S&P overnight was 2676. The 38.2% retrace of the whole fall at the beginning of the year comes in at 2663 so it held that level and if it can bounce here, then it is possible that this fall is really only part of the very thing I was looking for - volatility in both directions.
The Russell 2000 rallied nicely off its low. It has been the strongest sector for some time – if anything can keep the dream alive it is the RUT which of course is advantaged by the strength of the US dollar.
On the other side of the coin however, is the ETF JNK which as the name suggests covers what might be considered junk bonds. Didn’t like the break in this ETF and I often refer to this little number as the canary.
Australia has done a good job of preceding this move in the US having earlier formed a rounded top and has since been suffering the after effects of this pattern. Banks have been our weakest sector for the past few months and I still have concerns that in stocks such as WBC, trading for the past five years was a huge top pattern. For this reason I continue to look for trading opportunities elsewhere.
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