U.S. equities extended their slump amid weak global trade overnight as the repricing of volatility and all its related minions in the algorithm world compounded the stock rout as momentum indicators flipped and the VIX initially topped 50.30 earlier for another 31% gain, on top of yesterday’s 50% leap from lows of 16.80. The short-vol trade had been a crowded one and its reappraisal has been equally violent. The Dow is 118-points lower, S&P sank 2-points and NASDAQ is up 10-points in pre-open trade, amid heavy pre-open short-covering. Yet huge “fair value” adjustments will redoubling declines during the opening minutes of trade. Asia was hit hard with a 4.7% slump on Japan’s Nikkei, 5.1% plunge on the HK Hang Seng and 2.9% dive on the China CSI 300. Europe is also sharply lower, but trailing those losses, with the Euro Stoxx 50 off 2.6%, German DAX -2.4% and Spain IBEX -3%. The slightly wider U.S. trade gap wasn’t a surprise, while Fed hawk-dove Bullard wasn’t convinced that the wage gain in the January jobs report signaled an inflation acceleration. He also saw policy as closer to neutral presently, providing some relief on the Fed front. The dollar index is up another 0.3% to the 90.0 area as the long-standing short-dollar bias is trimmed. Gold rallied has high as $1,346 before settling back at $1,334. Bitcoin slumped as low as $5,920 before rebounding to $7,200. Look for some more high volume activity today as a new equilibrium is sought, with 10% correction levels providing the first line of defence for re-balancing.
Technically, the key 200 moving average was brought into play earlier toady at 2560; 2600 and 2700 remain key to the upside. The shake out is set to continue, even with RSI over sold at 25.
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