S&P 500 volatility test Wall Street’s nerves

Wall Street continues to bask in volatility. So, what were the last two days about?  I suspect that Monday’s reaction down was to the unsuspected FED move of cutting 50 basis points two weeks before they meet. The market expected a cut at the upcoming meeting, but it didn’t expect the FED to come out of the blue and do it.  I also think the market didn’t expect 50 basis points. 

So, why the drop?  If you think about it, it makes sense.  Everyone saw the FED one minute saying the economy is strong and the next minute doing the first emergency rate cut since 2008.  That doesn’t compute!  Traders were like, “What do they know that I don’t?  Are things worse than we expect?”  Sell!

Then today, we get another 1000 pts rally?  Sure seems manic, doesn’t?  Well, again you had a big market-moving event last night.  I don’t care to discuss politics much as it is too emotional of a subject for most people, but the fact is that the market (whether you think it is right or wrong) believes that Bernie Sanders is a threat because of things like his proposed Trader Tax and higher taxes on corporations (which = lower earnings). 

After Super Tuesday and Biden’s resurgence, it helped to bring more “certainty” that Bernie is less likely to be the candidate and gave the market some confidence.

Of course, we are not close to done with the primary cycle, so expect to see big swings based on who the “leader of the day” is until a final one is selected in a few months.  But, if you can remember that the market is a forward-looking instrument and is always trading off what it thinks earnings will be in the future, it will put things in perspective for you and explain the moves we get.

Personally, I love this movement. Its awesome for getting great, deep fills and allows me to sell in short time frames.  It is also great for widening wings on Iron Condors.