- Trump’s commerce warfare 2.0 narrative & steep sell-off in ASML spooked the performances of the most important US inventory indices on Tuesday, 15 October.
- Implied volatility within the US inventory market, measured by the VIX tends to be highest in October based mostly on knowledge throughout previous US presidential election years since 1992.
- VIX/MOVE ratio has began to indicate outperformance of VIX.
- The S&P 500’on-going 4-week rally has flashed out exhaustion situations.
The shed 0.75% on Tuesday, 15 October after it printed its forty sixth file excessive for 2024 on Monday.
Yesterday’s each day lack of 0.75% was the most important seen prior to now two weeks and attributed to the underperformance of the unreal intelligence (AI) juggernaut, Nvidia (NASDAQ:) (second largest market cap inventory within the S&P 500) which tumbled by 4.68% after a associated bellwether semiconductor chip-making tools agency, ASML (NASDAQ:) issued a downgrade to its income steering for 2025 that noticed its share value plummeted by 16%, its worst each day efficiency since 12 June 1998.
As well as, an opposed macro issue additionally attributed to yesterday’s weak point inflicted in all the most important US inventory indices apart from the which closed virtually unchanged; (-1.37%) and (-0.75%).
US commerce tensions with China narrative is now again on the radar of market members after US Republican presidential nominee Donald Trump reaffirmed his choice for increased tariffs on China and the remainder of the world’s exports to the US as he remarked that “tariffs are essentially the most lovely phrase within the dictionary” throughout yesterday’s stay in-person interview with Bloomberg Information organized by The Financial Membership of Chicago.
With lower than 4 weeks to go earlier than the 5 November US presidential election day, betting markets are actually indicating Trump has a lead of 56% over Democratic presidential nominee Harris (43%) based on betting common knowledge as of 15 October compiled by Actual Clear Politics.
October Recorded the Highest Degree of VIX Throughout Previous US Presidential Election Years
Fig 1: Common month-to-month VIX throughout US presidential election years since 1992 as of two Aug 2024 (Supply: TradingView)
No matter who wins the White Home race, based mostly on previous knowledge throughout US presidential election years since 1992, the , a measurement of the implied volatility of the US S&P 500 has elevated within the 4 months (July to October) earlier than the election month of November; a soar of round 40 p.c, and attain a median month-to-month excessive of 25.97 in October (see Fig 1).
Therefore, the S&P 500 now faces an elevated danger of a soar within the VIX which in flip might spark a multi-week risk-off episode within the world monetary markets.
VIX Is Now Displaying Outperformance Situations Over the MOVE Index
Fig 2: Main traits of MOVE Index, VIX & VIX/MOVE ratio as of 16 Oct 2024 (Supply: TradingView)
The Merrill Lynch Choice Volatility Estimate (MOVE) Index displays the extent of volatility in U.S. Treasury futures. The index is taken into account a proxy for time period premiums of U.S. Treasury bonds (the yield unfold between long-term and short-term bonds).
The motion of the MOVE Index has a powerful direct correlation with VIX (implied volatility of the US inventory market; S&P 500) since 2018 (see Fig 2).
Because the week of 16 September 2024, the MOVE Index has surged upwards considerably and cleared above a key medium-term resistance of 112.80.
The VIX has tagged alongside as properly however has but to interrupt above its key medium-term resistance of 23.38 (presently buying and selling at 20.80).
Apparently, the ratio of VIX/MOVE has printed a collection of “increased lows” and staged a bullish breakout from a significant descending trendline resistance on the week of 15 July 2024 which suggests outperformance situations of the VIX over MOVE Index have surfaced.
All these observations recommend a possible imminent soar within the VIX.
Watch the 5,930 Key Resistance on the S&P 500
Fig 3: Medium-term & main traits of the US S&P 500 CFD Index as of 16 Oct 2024 (Supply: TradingView)
Within the lens of technical evaluation, the worth actions of the US S&P 500 CFD Index (a proxy of the ) have began to indicate indicators of fatigue regardless of a string of file highs reached prior to now 4 weeks.
Since 22 August 2024, the US S&P 500 CFD Index has advanced right into a bearish “Ascending Wedge” configuration coupled with a bearish divergence situation sighted on the MACD Histogram in the identical interval which suggests its medium-term upside momentum has began to wane.
5,930 key medium-term pivotal resistance on the Index and a break beneath 5,675 key intermediate help (additionally the 50-day transferring common) is more likely to set off a medium-term (multi-week) corrective decline sequence to reveal the following medium-term helps of 5,390 (near the 200-day transferring common) and 5,100 (see Fig 3).
On the flip aspect, a each day shut and a clearance above 5,930 invalidate the bearish state of affairs for a continuation of the impulsive upmove for the following medium-term resistances to come back in at 6,110/130 and 6,390 (additionally the higher boundary of the most important ascending channel in place since March 2020 pandemic low).
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