Volatility Rises as Stocks Show Signs of Exhaustion

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

Volatility Rises as Stocks Show Signs of Exhaustion

Last week each of the major U.S. indexes posted gains of around 2% as stocks rebounded from a setback the previous week, when indexes fell more than 2%. Stock trading was choppy amid big price moves for assets such as cryptocurrencies and gold.

After a six-month 35% steady move higher, the S&P 500 rally is now facing challenges, showing signs of exhaustion. Market indicators, such as the rising VIX volatility index, and a shift toward safe-haven assets, like U.S. Treasuries, suggest some signs of investor fatigue is setting in. As a result, I think the stock market gains may be due for at least a pause and possibly a deeper pullback.

Volatility and Investor Sentiment

The Cboe Volatility Index on Friday morning briefly reached its highest intraday level since April near 29 before retreating in the afternoon. By Friday’s close, the VIX was actually down slightly for the week. The VIX volatility index, often referred to as the Wall Street fear gauge, has now climbed above 20, after spending much of the last few months in the mid-teens.

We have also seen larger one-day and intraday swings in markets overall, with the S&P logging its first 2% drawdown in one day since April on October 10.

There are several fundamental headwinds or walls of worry that the market needs to climb ahead, such as uncertainty around tariffs and trade, a possible U.S. government shutdown, new concerns around small regional banks emerging, and signals coming from the bond markets and the VIX volatility index.

Gold Surges, Bitcoin and Oil Slide

Gold futures surged more than 5% for the week and notched their ninth weekly gain in a row. The precious metal briefly reached as high as $4,392 per ounce on Friday morning—just eight days after eclipsing the $4,000 level for the first time.

The price of the most widely traded cryptocurrency, Bitcoin, briefly fell on Friday morning to its lowest level in three months before modestly rebounding in the afternoon. Bitcoin slipped below $104,000—around 17% below a record high of more than $126,000 reached less than two weeks earlier, on October 6.

The price of U.S. crude oil fell for the third week in a row and sank on Friday to the lowest level in more than five months. Oil briefly traded below $57 per barrel before rebounding in the afternoon. Concerns about a potential oil supply glut and the economic outlook have recently weighed on oil prices.

Also, the yield of the 10-year U.S. Treasury note slipped below 4.00% for the first time since April, when tariff concerns boosted investor anxiety and traded at its lowest level in 12 months.

Key Technical Levels and the Road Ahead

Important short-term technical support now lies near SPX 6550–55, 6380, and 6200–12. Technical resistance and projections near 6720–25 and 6760–62.

With the usual October historically weak period upon us, we can at least expect continued increased volatility. Suggest traders pay close attention to support and resistance on your charts and keep sensible stops in place.

In any case, we at thetechtrader.com will always “Trade What We See, Not What We Think.”

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