US equities finished higher in volatile Tuesday trading after suffering their biggest loss since the 1987 crash on Monday. All sectors were higher but it is interesting to note that defensive sectors outperformed. Energy lagged once again. Treasuries were weaker with the curve steepening. The dollar was stronger on the major crosses. Gold finished up 2.6%. WTI crude settled down 6.1%.
- Outperformers: Utilities +13.11%, Consumer Spls. +8.39%, REITs +7.21%, Tech +6.77%, Materials +6.66%, Healthcare +6.26%
- Underperformers: Energy +0.72%, Communication Services +3.99%, Consumer Disc. +4.03%, Industrials +4.20%, Financials +5.76%
S&P futures are trading limit down as two-way volatility continues in the market. Asian equities were weaker overnight with Australia, South Korea and Hong Kong leading to the downside. European markets are under pressure as well. Treasuries continue to sell-off and the curve is steepening. The dollar is weaker vs the yen but stronger vs the euro and other currencies. Gold is down 2.2%. WTI Crude is off 4.6%.
Sentiment remains more fearful than greedy as the market continues to sell off. The levels that we highlight below are extreme and part of the basing process will involve an alleviation of these extremes. You can read more about how I view sentiment in this post that I wrote for the Chaikin Blog.
The 13-day moving average of the CBOE Equity Put/Call Ratio is at 0.91, from 0.76 last week and has exceeded the levels that have tended to mark extreme pessimism over the past five years. While some would argue that this extreme level of fear is a sign that the market is going to turn higher, we prefer to wait for the indicator to begin to move lower as a sign that fear is abating in the market. Directional Change: Toward Fear
The VIX has moved to 73.40 from 52.02 last week and remains above the regression line. The market’s fear gauge is at levels that have tended to mark extreme highs for the indicator over the past five years. At the same time, the 10-day moving average of the VIX is also at a 5-year high. Look for signs of a reversal in this average to indicate that fear in the market is beginning to abate. Directional Change: Toward Fear