August is typically a slow month for the market, but that hasn't been the case this week. Volatility has surged, leaving many markets dazed and confused.
Overnight futures sold off on concerns that China was allowing its currency to sink again against the dollar. Those fears were quickly shrugged off and it looked like there would be a mildly positive open. But some poor economic news out of Germany caused a move into bonds.
Several central banks, including in India and New Zealand, had cut rates overnight and already some pressure hit yields, but the move snowballed and caused concern in the equity market.
Market players are used to celebrating lower rates, but this move was so big and so fast that it caused concerns that economic weakness was building.
There was a little some confusion that pushed stocks down at the open, but the moves in both bonds and equities reversed steadily the rest of the day. By the closing bell, stocks were back in the green and bonds had reversed almost all the intraday gains.
The bears have seized on this action as evidence of the great instability that is occurring in the market. There is no question that volatility has accelerated and that there are struggles to deal with rates that are hitting historic lows. Some of the relationships in the market that have lasted for over a decade are undergoing a shift.
Despite the drama, the major indexes held above key technical levels. The big intraday reversal was positive and suggests more upside in the near term. There is still high risk and the market has not formed a solid bottom but there is the potential for a little more bounce.
Small cap stocks have offered some interesting earnings reports and I'll be looking at them closely the next couple days.
Have a great evening. I'll see you tomorrow.