We’ve seen a massive shift in sentiment as global equity markets fall out of bed, the VIX spiking to rare levels indicates a low may be near, at least in terms of time. Crude oil is below a key slope line, while gold stays contained under a long-term trend-line.
Technical Highlights:
- VIX is spiking to extremely high levels, indicating a high level of fear and potential for a snapback
- Dow Jones leads the way in losses, DAX gaps lower but could bounce back soon
- Crude oil slips below July slope, gold remains contained (no strong safe-haven bid)
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VIX spiking to historically high levels, sign a bottom is nearing
The CBOE Volatility Index (VIX), regarded as a 'fear barometer', is spiking into historically high levels. It’s not often it reaches above 40, let alone 50, but when it does it typically means the market is nearing a low. In terms of time, it could be very soon, but price could sink lower quickly before finding a low.
The key to navigating a highly volatile market such as this, is to keep trading size small and stick to your process and not get caught up in huge price swings due to FOMO (Fear of Missing Out).
VIX Monthly Chart
Dow Jones plunges, big gap-down in the DAX today
Yesterday, the Dow saw some seriously violent price action. At one point it plunged 800 points only to recover about 700 all in the span of less than 20 minutes. The drop off the highs has been extremely fierce, and the expectation is that soon we will see a big bounce, from where is tough to say.
Traders want to be careful in trying to find a bottom. The approach on this end, is to wait for an initial bounce, then watch how price action behaves on a retracement/retest of any low which forms.
Global markets were closed when the bulk of the damage was done in the U.S., which resulted in big spills to start the day. The DAX gapped down sharply and has pared some of its losses, but it’s too soon to say if a new low won’t develop. In-line, though, with the U.S., a big bounce may be nearing. Patience on price action, first.
Is volatility shaking your confidence? Check out this guide, Building Confidence in Trading.
Crude oil slips under key slope, gold below long-term trend-line
We’ve been watching the July slope in WTI crude oil as support for the past couple of weeks, with it testing and holding on a couple of occasions. This kept a nice sequence of higher-highs and higher-lows in place until yesterday. The close yesterday below the slope and lower-low has the bias shifted lower towards 61 for now.
Crude Oil Daily Chart
Gold is not showing much of a safe-haven bid despite the plunge in global equity markets. The 2013 trend-line continues to be a problem. As long as it stays below this key threshold, a neutral to bearish outlook remains.
Gold Daily Chart
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---Written by Paul Robinson, Market Analyst
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