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Posts Tagged ‘Cataclysmic Events’

By Angela Moon and Ryan Vlastelica
NEW YORK | Sun Mar 20, 2011 6:16pm EDT
Reuters

Cataclysmic events including a nuclear disaster in Japan and the prospect of rising oil prices after military air strikes on Libya will keep investors reacting to headlines.

Western forces pounded Libya’s air defenses and patrolled its skies Sunday, but their day-old intervention hit a diplomatic setback as the Arab League chief condemned the “bombardment of civilians.”

“It’s (developments in Libya) something that the market is paying a very close attention and not only will oil prices be in focus but the headline grabbing stories out of countries like Iran in the region will keep investors nervous as uncertainty grows,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Many investors said the sudden increase in uncertainty had caused a corresponding rise in trading based on emotion rather than facts or fundamentals.

The volatility on Wednesday caused the S&P 500 to erase its gains for the year and then rebound more than 1 percent on Thursday.

Besides global developments this week, markets will get to respond to economic data on U.S. housing, gross domestic product and durable goods orders, but these may be relegated to second place behind traders’ reaction to the latest headlines.

Wall Street ended higher on Friday, but indexes finished lower last week. The Dow ended down 1.5 percent, its biggest weekly decline since August. The S&P fell 1.9 percent and the Nasdaq lost 2.6 percent.

“The stock market broke down (last) week, violating support levels and generally turning the technical indicators bearish,” Larry McMillan, president of McMillan Analysis Corp, said in a report.

WALL STREET’S FEAR GAUGE

The CBOE Volatility Index VIX .VIX, Wall Street’s so-called fear gauge, shot up nearly 30 percent on Wednesday when equities swooned after confusing statements from officials on the situation in Japan.

The gauge rose nearly 60 percent above its 50-day moving average, which has happened only a handful of times in the past 20 years.

Despite the 21 percent rise in the VIX for the week, traders bet the fear gauge would move higher. Call buying outpaced put buying on Friday, with about 232,000 calls and 111,000 puts, although both were below their average daily volume, according to options analytics firm Trade Alert.

“While the VIX peaked in the 30 area around mid-week, we won’t have confirmation that a top has been reached until we see a decline below these long-term trendlines and the 20 level,” said Todd Salamone, senior vice president of research at Schaeffer’s Investment Research in Cincinnati, Ohio.

The VIX settled at 24.44 on Friday. The gauge, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500. The heavy call volume suggests expectations for more anxiety in the future.

Read the entire article HERE.