Markets May Pause as Volatility Remains High
Markets in the US may be set for mixed action today as financials in Europe decline while a lack of fundamental indicators and news give few incentives for the rally to continue. Yesterday the Dow extended a move of more than 20% in the past three months with an additional 2.6% gain on uplifting releases in China and Europe. Today however, European and other foreign indicators were not of high significance while the Reserve Bank of Australia held its key rate unchanged at three percent. Several uplifting signs were seen such as rising Mortgage Approvals in the UK and construction PMI that came in well above expectations however concern lingers on following news of Abu Dhabi's International Petroleum Investment Co. plans to sell £4.12 billion in Barclays and several US bank announcements to raise capital in equity offerings. Downside in the financial sector and selling pressure following the rally may be likely as volatility climbed above 30 towards the end of yesterday's market close.
The CBOE Volatility index yesterday looked poised to close below 30, the level seen just a few times since the financial crisis escalated in September. Despite a market rally seen early in the week, the VIX ended the day moving higher to a close at 30.04. In the past two weeks, the index went as low 26.57 intraday on May 20 but then soared higher by nearly ten points before falling again. Volatility remains relatively high and with little optimism around to fuel a move higher today, US markets may follow European equities and commodities with a slight move lower. Consequently, the dollar may appreciate against the euro following a significant rally towards potential fibonacci resistance. Of note however, a rise well above expectations in soon-to-be released pending home sales data could send markets higher.