Global concerns have volatility up and prices down

July 8, 2015 10:38 AM

Yesterday was one of the more volatile days that we have seen in sometime across a wide spectrum of markets. The Greek scenario continues to capture the most headlines as negotiations are constant and ever changing. The real issue though may be one that should garner more attention and that is the lagging Chinese equity market. Today another massive hit to their indices caused many stocks to be halted for fear of an actual panic driven crash.  

Whether real or orchestrated, this certainly has given some cause for concern to our equity markets now down as a result after spending yesterday afternoon rallying over 40 handles off the low in the S&P 500 into positive territory.  While there are obvious legitimate concerns economically, they don’t seem to warrant this type of movement making one look toward  the algorithms and a lack of mid level trader liquidity as a culprit in the massive swings that we are starting to see. It seems like a good time to make certain risks are quantified through long options or stop loss tools as these markets are not only unforgiving but also multi directional in the same session. 

Crude oil's wild ride yesterday is a great example of this manifestation. With a nearly 4 dollar range that went from high to low and back to high again, one can only assume that there are significant players looking to the demand factors as they attempt to press the market farther than it probably should go under the circumstances.  This rubber band effect usually produces a strong correction that can actually eclipse the initial move particularly when the price discovery is based more on rumor and innuendo than facts.  

The low of $50.58 yesterday was followed by a rally to the mid-$53 handle shortly after the close of the energy markets.  Inventories for both API and EIA were relative non events; though ever so slightly bearish in there tone.  We are seeing some corrective selling based on the weak commodity sector as a whole with WTI trading today into the $51 handle.  However, should we see any progress in a Greek deal that produces a turnaround in equities, expect the crude to follow suit in an aggressive manner. Unfortunately, the actual fundamentals like Iran dealings or supply reading have very little to do with this price discovery. Demand fundamentals do to some extent but it’s really more confidence (or lack thereof) in markets driving the price action. 

Natural gas suffered some through yesterday’s action but really has not been affected much as nat gas tends to march to its own beat really more than any other commodity. So while it did lag a bit yesterday before coming back modestly, the moves were more natural and less expansive, lending credence to the idea that once the smoke clears a bit then the NG will most likely adhere rather quickly back to its fundamental movement, which would seem to indicate a readiness for a rally out of the recent tight range. 

Keep an eye on the FOMC minutes this afternoon as that could be the catalyst to see the United States render itself from the quagmire that the rest of the globe is feeling currently. We are reacting to other problems globally though appear fairly priced when considering the actual US fundamentals and the FOMC committee could reiterate that today, possibly staving off this decline and righting the ship. 

About the Author

Tory Enerson is a senior market strategist with the Zaner Group in Chicago, an Independent Introducing Broker. He has been in the futures industry for over 20 years. Beginning his career at the CBOT in 1990, Enerson worked his way up through the industry when he became a member of the CBOT in 1998 and traded for over a decade before beginning to work with clients as a market strategist.