Volatility Spikes On Russian Aggression In Ukraine
MarketBeat.com | Feb 25, 2022 01:01PM ET
Volatility has spiked in the wake of the Russian invasion of Ukraine . While the pundits and talking heads debate the causes, what went wrong, and what the outcome will be, traders and investors need to brace for increased volatility and whipsaw action in the market. The S&P 500 appears to be bottoming at this time but it will only take one headline to make it reverse course. Along with that, the latest read on inflation is above expectations and another acceleration to new highs. The market seems to have taken the news in stride but it raises the odds of aggressive FOMC action.
The VIX has come down from the peak set in the wake of Putin’s opening gambits but remains high near 29.00 and well above the previous resistance point near 23.70. The near-term outlook suggests volatility may continue to subside from the peak but the trend is higher. Now, with action clearly above the 23.71 level, we expect to see it act as a support zone for fear and a top for equities. The turning point for the VIX may come with the next spike in fear and that may be as soon as today or early next week. If the next spike reaches up to another new high the odds of a prolonged and/or sustained market correction become very high.
The biggest risk for traders lay in the futures trade. Futures action has been among the most volatile especially in the between-market times after the U.S. close and before the Asian open, and during the European session leading into the open of trading here at home. Large moves posted in these sessions have led to major intraday reversals both in pre-market and regular market action. We do not expect that to end.
h2 The Inflation Picture Darkens/h2Meanwhile, the Ukraine ’s air infrastructure, is that Putin is looking for a quick surrender that we do not think will come. Regardless, the news is more of Putin’s smoke and mirrors, we believe Ukraine will fall to Russia and within the next couple of weeks. The takeaway is that market action in the SPX is trending lower and recently set a new low. With volatility trending higher, inflation accelerating, and war brewing in Europe we expect to see the SPX confirm resistance at or below the 30-day moving average and then move down to retest the recent lows or move lower.
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