Interesting times for equity markets at present, and with the Nikkei leading the way with further falls overnight, risk assets are certainly under the cosh right now, with the euphoria of May now evaporating fast like the rain from a summer shower. The VIX reveals the fear and greed of market behavior in equal measure, and following the extended period of consolidation in the 12.00 area on the daily chart, recent price action has seen the VIX rise fast, as it starts to test the 18.40 to 20 area once again. What is interesting about the index, is that we have seen this catenary price action several times in the last few months. First in late 2012 and into early January, where the index touched a 19.28 higher before falling back, second in mid-April where the high was 18.20, and finally and most recently in early June with an 18.51 high. Indeed in yesterday’s trading session this was breached with the index closing with a wide-spread up candle at 18.59.
Whilst the floor of support is now clearly defined in the 11.50 to 12.00 area, the price action over the next few days is likely to dictate the longer term direction for equity markets, which look weak at present. A move beyond the ‘triple top’ area at 19.00, could then see further downwards pressure for equity markets, with the VIX climbing higher towards the 23.23 high of late 2012. If this does come to fruition, then we could see a move higher in the longer term. Much will depend on the next few days, technically of course, and the fundamentals, such as they are, will continue to impact risk assets in this topsy-turvy world in which we are now living. However, some way to go I think before we hit the PANIC button!
By Anna Coulling