Extreme Volatility Continues to Frame Market Sentiment

If the financial markets were composed of cream, today’s action would’ve provided enough churning to turn them into butter. The volatility index has ramped up yet another notch as information overload and changing headlines have caused U.S. equities as well as gold to oscillate from positive to negative a number of times in trading today.

U.S. equities vis-à-vis the Dow were down almost 600 points in pre-opening futures in the overseas markets last night. However once opened in New York stocks gained momentum and the Dow actually turned positive by a couple hundred points, before returning to negative territory.

As of 4:02 PM EST the Dow Jones industrial average closed down 122.21 points, and is fixed at 26,959.19. More significantly the Dow opened and closed below its 200-day moving average which is currently set at 27,235. Because of the weight market technicians place upon this long-term moving average it is truly signaling that we might see more weakness in U.S. equities.

This highly volatile trading range is still a direct result of market sentiment reflecting traders and investors real concerns about the long-lasting effect of the coronavirus on the global economy. To date there have been 81,312 cases confirmed of the coronavirus (COVID – 19), with 2770 confirm deaths. This latest data clearly demonstrates that the spread of this virus continues to grow and reach new areas around the world.

According to MarketWatch, “The increase in cases overnight has primarily been driven by new cases in Iran (now at 139 cases and 19 deaths), Italy (401 cases and 12 deaths), Japan (178 cases and two deaths), and South Korea (1,261 cases and 12 deaths). While the outbreak has largely affected China — China’s Hubei Province has reported 94% of total deaths and mainland China has 96% of total cases — the emergence of COVID-19 clusters in these other countries has alarmed markets in recent days.”

One perplexing factor in gold today is the discrepancy between how the spot market and the futures markets are trading. Spot gold is currently fixed at $1639.81, which is the result of a net gain of approximately five dollars on the day. Simultaneously we have gold futures, bases the most active April contract currently trading at $1640.70, after factoring in a decline of well over nine dollars per ounce.

Spot and futures prices in gold typically run in tandem, with both trading in the same direction. Although the price difference between spot and futures reflects both the short-term and long-term outlook it is unusual to see the physical market trading higher with the futures markets trading moderately lower simultaneously. 

Wishing you as always, good trading,