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Dow Futures Plunge 410 Points as ‘Fear Gauge’ Flashes Red Signal

Originally published on: CCN Markets
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August 14, 2019

Dow futures decline

Dow Jones Industrial Average (DJIA) futures stumbled in early trading Wednesday as the ‘fear gauge’ flashes a warning. Source: Shutterstock

By CCN Markets: The Dow Jones chalked up its best performance in months yesterday after Donald Trump delayed additional tariffs on China until December. But the stock market party was short-lived, and the futures market points to a weak open on Wall Street on Wednesday.

If you’re looking for reasons why the markets have lost their excitement this morning, look no further than the VIX, also known as the ‘fear index.’ Speaking to CNBC, VIX expert Mark Sebastian said the fear gauge is doing something it shouldn’t be doing. And that’s a flashing red light.

Dow futures in triple-digit fall

At 7.04 am ET, Dow Jones Industrial Average futures plunged 410 points lower to 25,904. The 1 percent fall points to a weak market open, despite yesterday’s relief rally.

Dow Jones futures Wednesday
Dow Jones Industrial Average (DJIA) futures fell more than 100 points in early trading Wednesday. Source: Yahoo Finance

It follows a weak session in Europe which saw Germany’s DAX fall almost 1 percent and the UK’s FTSE 100 drop 0.4 percent.

S&P 500 futures and Nasdaq Composite futures mirrored the Dow’s pre-market fall.

Fear index: a glimpse into stock market sentiment

The VIX, or CBOE Volatility Index, typically has an inverse correlation to the stock market. It goes up when traders are nervous and uncertain. In practice, the VIX moves lower when the Dow or S&P 500 goes higher.

But even despite yesterday stock market jump, the VIX remains above 16, a mark that generally determines caution in the markets. If traders were genuinely bullish on the stock market, the VIX should have fallen further. 

VIX
Despite yesterday’s stock market rally, the VIX remains above the psychological 15 mark, generally hinting at caution in the markets. Source: Trading View

As CNBC’s Jim Cramer explained:

“Every time the S&P’s had a rapid rally that failed to really bring down the VIX … it resulted in some sort of sell-off … The most notable one being the big blowup in January of 2018.”

Expect a Dow Jones pullback?

If Mark and Cramer’s analysis is right, there could be more choppiness in the markets ahead. After consolidating, it may then push higher again. 

“[Sebastian Mark] says the market needs to pull back a bit for a couple of days, then hopefully we get a slower, more logical rally.”

This article was updated at 8.22 am ET to reflect updated prices.

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