Volatility Drops As Equities Jump09.27.2011
The Federal Reserve’s “Operation Twist” proves successful as equity markets rally around positive sentiment.
Equity traders rejoiced for another day in a row as all fears of negative impacts on the market were quelled. Europe is but an afterthought as the Dow Jones Industrial Average closed upwards of 11,190 and was up more than 320 points at one point during the day before a late day fade. This comes after a positive Monday in which markets jumped a few percentage points worldwide.
But those who are celebrating their winning positions should remain cautious. Despite a sharp drop in the CBOE Volatility Index (VIX), traders are mixed on their take of where the market will go.
“In most markets, the movement is geared to anticipating the next move. This is heightened in choppy markets since there are no foregone conclusions everyone is trying to anticipate the next move,” Wesley Harr, trader at stockMONSTER, told Markets Media.
“This phenomenon is expressing itself in full effect today and after last week taking it on the chin, we rally Monday and Tuesday screwing the shorts and getting the longs excited,” continued Harr. “However, I caution that just when the longs get comfortable the rug will be pulled out from underneath them and these markets will drop once again. This is a market that will frustrate the very best trader; it is out to screw the most people it can at any given time and if to do that it needs a day to set itself up (like it is today) then so be it.”
As popular as the DJIA is, traders know that the S&P 500 is the tale of the tape and the best indicator available for equity traders. For proprietary traders like Harr, it’s all about the levels.
“I’m watching the 1204 SPX area closely. Be skeptical of the obvious tells and consider the other side of the fence and remember that on a macro basis, the market is broken,” cautioned Harr.
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