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  • Key break here in the 10-year #Treasury yield as it rises to the highest since late June Took out 1.4230 resistance, and the 100-day SMA Eyes now on the 38.2% Fib extension at 1.4775 Also potential falling resistance from March
  • The move in rates after this week’s FOMC has continued and the 10 year yield has pushed up to a fresh two-month-high. Get your market update from @JStanleyFX here:
  • S&P 500 contending with its proverbial ‘line in the sand’ as bulls and bears battle for directional control. How we close/trade around the 50-day moving average could serve as a noteworthy bellwether for risk trends headed into next week. I remain cautious below ~4,480. $SPX $ES
  • USD/JPY trades to a fresh monthly (110.57) amid the pickup in longer-dated US Treasury yields, and the exchange rate may stage a larger advance over the coming days. Get your market update from @DavidJSong here:
  • US yields continue to climb, with the 10-year Treasury yield trading above 1.45% $ZN $ZB
  • $USDJPY bull thesis appears quite constructive. Technicals show topside breakout above trend resistance following a period of consolidation. Bond yields providing the fundamental catalyst. Eyes on Aug/YTD highs. A broad-based deterioration in market sentiment poses downside risk.
  • WTI posting another session of strong gains, currently flirting with the 74 handle $CL #Oil #OOTT
  • The New Zealand Dollar’s bullish breakout attempt in early-September was rebuffed. Price action at the end of the month is telling a different story. Get your market update from @CVecchioFX here:
  • So much for that Evergrande recovery. Shares of the troubled Chinese property developer are down approximately -12% today following yesterday's impressive rally (biggest in a year)
  • Retail trading platform Robinhood announces hire of new Chief Compliance Officer amid regulatory scrutiny
S&P 500 and Dow Jones Weakness Failing to Result In a VIX 'Event'

S&P 500 and Dow Jones Weakness Failing to Result In a VIX 'Event'

Paul Robinson, Strategist

S&P 500/Dow Jones/VIX Outlook:

  • S&P 500 below 200-day, near bottom of rising wedge
  • Dow Jones near earlier-year gap-fill, below support
  • VIX yet to spike, more weakness might cause an ‘event’

See how the quarterly forecast has played out so far and what it could mean to end June in the Q2 Equity Markets Forecast.

S&P 500 below 200-day, near bottom of rising wedge

The S&P 500 dropped below the 200-day MA on Friday, now moving towards the bottom of the rising wedge pattern that kicked off the recent bout of weakness. The bottom of these patterns is viewed as the first significant target and may help induce a bounce.

So far, the manner in which the market is weakening isn’t very concerning, though, at least not to options traders who don’t seem to be too worried as the Cboe Volatility Index (VIX) is showing a muted response. Often the VIX is regarded as a ‘fear barometer’ for its tendency to rise during declines and fall during rallies.

With an acceleration lower in stocks a sharp rise in the VIX is almost certainly to develop. Watch for signs of it suddenly surging in the days ahead with more selling in the S&P 500. A sudden spike would indicate a wash-out and a likely low for the market in the near-term.

This would be viewed as a bigger picture positive for stocks as minor down-moves quickly met with high levels of fear are seen as a healthier development than if the market were to continue to slide without seeing some type of ‘panicky’ behavior.

We may soon see a bounce without getting a VIX event, but overall market participants seem relatively complacent in the face of weakness and this may be signaling that a broader decline, whether from here or following a small bounce, could become much more severe in the not-too-distant future.

Check out the IG Client Sentiment page to see how retail traders are positioned and what it could potentially mean for various currencies and markets moving forward.

S&P 500 Daily Chart (nearing bottom of wedge)

S&P 500 and Dow Jones Weakness Failing to Result In a VIX 'Event'

VIX Daily Chart (not very jumpy)

S&P 500 and Dow Jones Weakness Failing to Result In a VIX 'Event'

Dow Jones near earlier-year gap-fill, below support

The Dow Jones broke the swing lows created in March and last month just above 25200, now heading towards a gap-fill in January at 24580. It’s not a major level of support, but with a lower parallel in the same vicinity and the S&P 500 nearing the bottom of the rising wedge pattern we may see the Dow bounce soon.

Old support becomes new resistance on a bounce, with the 25200-area up to the 200-day MA at 25428 and trend-line off last month’s high acting as roadblocks for further strength.

Dow Jones Daily Chart (Held 200-day, gap to fill)

S&P 500 and Dow Jones Weakness Failing to Result In a VIX 'Event'

To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.