Volatility Reigns Supreme

Terry Flanagan

Traditional investors and the retail crowd have been forced to swallow the bitter downturn of the equity in the wake of S&P’s downgrade of the United States’ credit rating. Investors both big and small are fleeing to cash, gold and ironically, Treasuries.

For the investor that focuses on the long-term, yesterday’s markets have generate fear among market participants as equities mimic the markets of the 2008 financial crisis. It also remains to be seen if Ben Bernanke and the Federal Reserve will intervene with yet another round of quantitative easing.

Day traders, however, are poised to reap profits from the markets. Volatility has come back, with the Chicago Board Options Exchange Volatility Index (VIX) hitting 40 yesterday; a level not seen since the end of 2010.

Swing and scalp traders had a field day as everyone poured into the market, boosting volumes and volatility and creating violent swings in some names.

Hedge funds and other institutions are using their buying (and selling) power to make big bets on the outcome of various markets, including credit, CDS, equities, commodities and precious metals.

Energy traders have also been getting in and out of the market as crude oil fell in tandem with equity markets, flirting with $80 a barrel.

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