Market Volatility to Be Driven by Oil and Europe

Two market headwinds — Europe and falling oil prices — turned gale force Monday, and analysts expect the volatility to continue for now.

Treasury yields carved out new, lower territory while stocks were clobbered and oil plunged below $50 for the first time since April 2009. The dollar rose as the euro traded below 1.20. The 10-year was yielding 2.03 percent, lower than any 2014 close, as the Dow fell 331 points to 17,501, its worst day in three months. The S&P 500 lost 37 points, or 1.8 percent, to 2,020.

“Oil hitting record lows and the dollar hitting record highs kind of shakes people up,” said Randy Frederick, managing director, trading and derivatives, at Charles Schwab. “I would be a little cautious for a while — at least a week or two. These type of things don’t go away overnight.”

Stocks have defied Wall Street convention that the early days of the new year are more often positive. The S&P was down for four straight sessions as of Monday, the longest losing streak in 13 months. The S&P 500 is down 3.4 percent over the past five sessions, and is negative for the Santa Claus rally period for the first time since 2007. That is the last five sessions of the old year and first two of the new year.

“The saying is ‘If Santa Claus may fail to call, bears may come to Broad and Wall,’ ” said Jeff Hirsch, Stock Trader’s Almanac editor-in-chief. Hirsch said that while there’s concern about the market not being up in the seven-day period, he also looks at other metrics, such as whether the first five days of the year are higher and whether January is up or down.

The last four times the market had a loss during the Santa rally period, the market was down three times for the full year, but up once, with a 3 percent gain in 2005. In 2005, the market was also lower for the month of January, viewed as a bad omen, and down in the first five days of the year, another bad sign.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza