On the heels of continued volatile trading, three of the greats in the business just issued warnings about today’s trading.
A portion of today’s note from legend Art Cashin: Another Pair Of Eyes – We thought we’d quote our good friend and fellow market veteran, Jim Brown, the guru of Option Investor.
Here’s how he opened:
After a year of extremely low volatility, the new normal is extremely high volatility.
Unfortunately, this is normal and we have warned about this multiple times over the last several months. Long periods of very low volatility normally end with periods of extremely high volatility and it is not over in just a week or two.
Typically, after a volatility spike it takes weeks for the volatility to return to its normal range of 14-18 on the VIX. The following example shows the VIX spike to more than 50 in August 2015 when the S&P fell more than 235 points in five days. It took nearly two months for the VIX levels to return to normal. It took seven weeks before the S&P finally consolidated enough to begin a lasting rebound.
The economic fundamentals are much stronger in 2018 than 2015 and earnings are rapidly rising. It should not take seven weeks for the market to find a bottom but it may take several weeks before an actual rebound begins.
Due to format restrictions, we can’t reproduce Jim’s chart – but you get the idea. Jim closed his note with a strong caution on volatile Fridays.
Never buy on Friday. You never know what is going to happen over the weekend and market declines on Friday tend to continue at the open on Monday. Experienced traders never buy on Fridays in a volatile market.
Friday’s can turn into flush days. Investors who have been trying to hold out all week could see the margin selling at Friday’s open and decide the market is going lower and the give up on hope as a strategy. They hit the sell button and kick themselves for not getting out earlier.
This is called a capitulation event. If it occurs on Friday, that is an even better sign for dip buyers on Monday. Remember, margin selling usually occurs before 10AM and again at 2PM.
The futures have been all over the place tonight. They were positive for a while, dropped to -10, rebounded to +10 and are now negative again. This is investor indecision and traders trying to game the overseas markets.
Look for signs of capitulation on Friday as a buy signal for Monday.
Another good friend, the legendary Jeff Saut over at Raymond James often notes that selloffs rarely bottom on a Friday, if ever.
I’m not prepared to say never but I will endorse the very, very rarely.
Overnight And Overseas – In Asia, markets were hit hard. Shanghai fell the equivalent of 1000 Dow points and has moved into correction territory. Tokyo, Hong Kong and India sold off heavily but not quite as harshly as Shanghai.
In Europe, where markets sold off sharply yesterday, prices are lower but only modestly so.
Among other assets, Bitcoin is down a bit and is trying to hold over $8000. Gold is a shade lower and remains within its resistance band. The euro is little changed against the dollar while yields are at tick or two higher.
Consensus – In ordinary markets, Fridays have a mild upward bias as shorts tend to reduce exposure in front of two days when they can’t trade but events can happen. Those are not ordinary markets by any means.
Stock with the drill – stay wary, alert and very, very nimble. Have a wonderful weekend!
ALSO RELEASED: Former Soros Associate Just Exposed What Really Caused The 1,000+ Point Freefall In The Stock Market Today CLICK HERE TO READ.
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