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Financial Markets Continue To Exhibit Extreme Oscillations

Commentaries & Views

Even during defined trends in the financial markets, the day to day price fluctuations will be composed of both positive and negative gains. There is nothing unusual about that type of price movement. It is a natural tendency of price movement over time.

However, recently increased volatility which is expressed through sizeable oscillating price swings have become more pronounced and frequent. Over the last two trading days, we have seen that tendency emerge.

Yesterday, the Dow Jones Industrial Average traded almost 500 points lower on its low and closed nearly 400 points below the previous close. The polar opposite occurred today with a powerful rally in U.S. equities in which the Dow gained 306 points when compared to yesterday’s close.

What is noteworthy is not the fact that stock and commodity prices oscillate from positive to negative from one day to the next, it is that that on many occasions there are no new fundamental events to warrant it.

Yesterday’s concerns about the debt level in Italy have not changed in the last 24 hours. However, today market participants chose to react to this fundamental news in a different way than they responded yesterday.

Yesterday’s dollar strength was roughly equal to today’s dollar weakness, which would suggest a fundamental change of events as an underlying cause and not an overreaction. An overreaction would have resulted in a decline of the percentage of yesterday’s gains, rather than today’s decline equaling yesterday’s gains.

What is clear is that we live in an age of extreme volatility where the fundamental scenarios and events change from day to day as they always have. However, what has changed is the pace at which the global trading community, armed with electronic trading, can react to these scenarios and events instantaneously resulting in heightened and magnified intrinsic volatility and price swings in the market.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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