Volatility to continue being massive talking point

Good morning,

Volatility has been a massive talking point over the last week and this looks set to continue following some more big moves in Asia overnight and Europe this morning.

I’m not sure we’ll get the kind of volatility seen last week in the coming days, which I’m sure traders will be more than happy about, but compared to the last few years it is likely to remain elevated. It goes without saying that traders like volatile markets as they’re necessary in order to create tradable opportunities, but too much volatility can be as unwelcome as none at all.

The big question this week is going to be whether the correction has played out if what we’re seeing is simply the bears taking a breather. I personally think we have either reached or come very close to the lows we’re going to see this year. I wouldn’t exactly say I’m bullish yet as I think we could yet see a retest of those lows from last week, or even a move slightly below, but I’m not bearish either.

The giveaway could be how traders react to a retest of those lows. Last week the response was panic is why we saw such aggressive selling at even the tiniest piece of negative news flow. If we get a similar response this week then there could be plenty more downside to come but I’m not convinced we will. The S&P came close to a 10% decline from its all-time highs and I think this area will now be well supported.

Earnings season could play a much bigger part in the coming weeks with many more companies reporting on the third quarter. This week alone, around a fifth of the S&P 500 companies are scheduled to report earnings which, given how quiet a week it is on the economic data side of things, could well have a big impact on investor sentiment.

Today there is nothing noteworthy in terms of economic data, but on the earnings front we will get numbers from Apple and IBM, among others. It’s certainly worth keeping an eye on how these perform because it could impact sentiment which affects all markets.

The S&P is expected to open 4 points higher, the Dow 37 points higher and the Nasdaq 8 points higher.