Volatility to Pick Up Towards Year End

VIX December future – Daily (Bloomberg)
VIX December future – Daily (Bloomberg)

Equity markets have had an incredible ride over the past 2 months with most stock indices up 15% to 20% from their late August lows. This took the volatility index futures VIX and VTOXX back to the summer lows. Equities were driven by a mix of descent corporate earnings, especially in technology (techs are on fire), economic data, M&A, but most of all by central banks

 

The ECB and the PBOC have played a big role in talking the markets up, but at the same, they have set high expectations for the end of the year. A QE-2 in Europe at the December 3rd meeting will be highly awaited, hence, any disappointment could have a dramatic impact on equity markets. This will be followed by the Fed meeting on December 16, where the central bank could increase interest rates for the first time in 9 years. The probability of a hike is now at 70%. 

Following a record October (strongest 1-month performance since 2011), and as we approach the important December deadlines, we can expect volatility to pick-up.

Technically the DAX is losing momentum with a noticeable bearish divergence on the 4H and Daily Chart. A break above the bearish trendline (red line) would be needed to confirm bulls are back in control. Should it fail to do so, a pullback towards 10500 can be expected.

Dax cash– 4Hour
Dax cash– 4Hour

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