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The VIX Rebounds as Traders Refocus on Oil and Canada

David Becker
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The VIX Rebounds as Traders Refocus on Oil and Canada

After falling for 4-straight trading session the VIX volatility index found footing as investors turned their attention away from the rebound in stocks and robust earnings and instead toward oil prices and violence in Canada. Despite Apple (NASDAQ:AAPL) shares hitting a record high the major U.S. average where unable to hold on to early gains.

The VIX volatility index which measures the “at the money” strike prices for the S&P 500 index rebounded to highs of 17.70 from lows of 15.50 due to the concern about the situation in Ottawa, after a gunman shot down and killed one soldier. An Obama press conference on the possible domestic terrorist action in Ottawa condemned the action but it appears that North American leaders are still deliberating over situation. As the VIX moves higher, option premiums increase, making it more expensive for traders to hedge their portfolios.

Traders continue to eye oil prices, which started to dip again. Recall it was the rebound in crude from the $79.80 to $83 that allowed stock prices to rebound this week. Prices settled on Wednesday at $80.50 after the Department of Energy reported a 7.1 million barrel rise in crude inventories, as versus the 2.0 million barrel forecast. If prices of oil continue to move lower, they will likely drag down energy shares, which will generate headwinds for the broader markets.

Stocks got off to a rough start in the U.S. despite a report on consumer inflation which will likely keep the fed at bay. The September headline CPI grew 0.1% compared to median expectations of 0.2%, while the core index was up 0.1% compared to median expectations of 0.2%. The year over year growth held steady at 1.7% as did core year over year growth at 1.7%. Energy prices declined 0.1%, with a 1.0% gasoline price decline.

The S&P 500 index recaptured the 200-day moving average, and despite a selloff on Wednesday, is poised to test the 50-day moving average near 1966. Momentum on the large cap index has turned positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

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