Volatility Struck the Market in a Huge Way This Week

Volatility Struck the Market in a Huge Way This Week

Just like a storm on a hot summer day, volatility struck the market in the last week.

Between 1:26 p.m. ET on Thursday and 3:10 p.m. yesterday, the S&P 500 dropped 188 points. That was more than double its range for the entire month of July.

The selling climaxed on Monday as investors came back from the weekend scared of President Donald Trump’s trade war against China. They hammered the index almost 3 percent, its worst one-day drop since early December.

That session was so bearish that only eight of the S&P’s 500 member stocks managed to rise.

S&P 500 chart with support line and Rate of Change indicator.

It also pushed up the Cboe’s volatility index ($VIX.X) by nearly 7 points. The last time it moved that much in a day was early in October as stocks began their worst quarter since 2011.

Support Broken amid Summer Doldrums

It was almost impossible to predict the move because investors were focused on other big events. The Federal Reserve cut interest rates for the first time in over a decade and key economic reports showed jobs growth still humming along. It was also the busiest week of second-quarter earnings season as major companies like Apple (AAPL) issued results.

But those stories quickly faded after the Administration slapped tariffs on an additional $300 billion of Chinese goods. And it got worse when Beijing seemed to retaliate by letting its currency crash against the dollar.

Another cause for the volatility spike was the break of a support zone from earlier in the year. Once that gave way, buyers had no clear levels to defend.

Mastering Volatile Markets

Regardless of why the market just crashed, one thing is clear about volatile markets: Companies stop trading on their own fundamentals as emotions take hold. Attention shifts away from individual stocks and toward the big indexes.

This can be frustrating for investors, until they learn to harness the power of futures. The biggest stock indexes — S&P 500, Nasdaq-100 and Dow Jones Industrial Average — have futures. All three set volume records for the on Monday as investors scrambled for shelter in the volatility storm.

Did you know TradeStation clients can now go to the next level with our new FuturesPlus service? You can even buy and sell options on futures. Diversifying your portfolio and hedging against risk has never been easier.

In conclusion, volatility can hit markets quickly and violently like a thunderstorm on a hot summer day. While there are always risks and no guaranteed path to profit, traders who are ready stand a fighting chance. So even if you missed this volatility spike, with FuturesPlus you can be ready for the next one.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.