Markets Rangebound Near Extremes

Markets Rangebound Near Extremes

Floor traders in the CME's S&P futures pit have always gone into the day after a large drop expecting a sideways day. That's what usually happens and it's what happened Wednesday.  



Markets Rangebound Near Extremes
Markets Rangebound Near Extremes

U.S. stocks had a large selloff on Tuesday, with the Dow losing the most (1.85%). Wednesday marked several attempts to rally, but each rally was met with program selling, computer algorithms executing short sell orders and overwhelming the buy-side volume. With the trend in stocks still down and investors still nervous about the strong dollar and guessing on the timing of a Fed interest rate hike, the current price action in stocks in the US and Europe is marked more by bargain-hunting than sustained rallies.

However, an old trader's rule says that the Thursday and Friday before the expiration of options on stock futures will see a low, followed by a rally into the expiration. Whether that plays out today or not, there will be price moves in both directions for short-term traders, especially binary option traders, to take advantage of.

Gold continued to struggle into early Thursday morning after an eight-day run of losses. As with crude oil, the strong dollar has some effect on gold because gold is priced in dollars. The sustained dollar rally has longer-term investors pulling out of bullion. SPDR Gold Trust, the world's top gold-backed ETF, saw its holdings drop to their lowest in over a month. Short-term traders should note, however, that even selloffs happen in waves of selling and short-covering, never in a straight line.

As is typical, other precious metals followed gold downward. Platinum was trading near its lowest since 2009, while silver hovered near a three-month low.

The euro "wallowed," as CNBC put it,  just above a new 12-year low as the European Central Bank began its quantitative easing with €60 billion in bond buying. The QE is expected to total 1 trillion euros by 2016. When bonds are in high demand, issuers will lower the amount they will pay out as an incentive to buy those bonds. Right now with the ECB buying in bulk, yields are below zero with the bonds of some Eurozone governments at all-time lows. A 30-year German bond now offers a yield lower than that of a two-year U.S. Treasury note.

U.S. crude futures rose slightly on Thursday as the dollar rose, with price action rangebound as in other markets. Since crude is priced in dollars, this sort of equal and opposite reaction is natural. Crude had dropped last week when U.S. oil inventories were reported to be at a new record high. April WTI crude futures had gained 13 cents to $48.30 a barrel by yesterday evening, offsetting earlier losses.


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