Volatility Spikes and China Virus Spreads

Power Trading and Markets – Feburary 02, 2020

Volatility Spikes and China Virus Spreads

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CURRENT TRADING LANDSCAPE

The market has been volatile, and sold of precipitously on Friday on the above average volume.  Rise in $VIX above 20 and above average volume is a sign of last phase of the sell off and I believe the worse part of the sell off is behind us. I expect market volatility to persist as Coronavirus headlines fuel algorithm-related selling and buying. As long as the US Dollar and Treasury prices continue to go higher, equity markets will unable to make new highs.

The market outlook for the next four weeks remains the same. I expect an additional 1-2% correction in the next two weeks and the bull trend to resume by the end of February early March. However, the market has not reached oversold levels yet. I remain bullish on the pullbacks, as long as the market is above/near 50 days MA on SPY. I expect SPY to be range-bound between $320 and $332 for the next 2-4 weeks and the bull market to resume toward the end of February. Please watch $317-320 support levels using SPY.  

SECTOR SPOTLIGHT

 Certainly, the most debatable sector to consider for trades involves China. After a solid rally leading up to and following the signing of the Phase 1 deal, Chinese stocks have undergone a sharp sell-off that has the iShares China Large-Cap ETF (FXI) trading back down to the test its October low of $39.50.

The 52-week low was set at $37.66 back in mid-August when the trade rhetoric was at peak levels. From the 2-year chart below there is clear support at $39 and then below at $38 where FXI has successfully absorbed the selling pressure and rallied off of.