In focus: Volatility is back!

By Lawrence G. McMillan

After some minor selling last week, the Unemployment Report was used as an excuse for some heavy selling on Monday. Since the report came out when the market was closed (what poor methodology!), the stock market had the whole weekend to worry about things.

On Monday, the Standard & Poor’s 500 Index ($SPX) opened about 15 points lower in reaction to the Friday unemployment figures. From there, the market tried to rally back as it has so many times this year, but it couldn’t do it. Instead, late-afternoon selling dragged the index back down towards its lows. It thus closed below the first support level, an important technical violation. It also closed below its 20-day moving average for only the second time this year.

Not only that, but the Monday decline activated other sell signals. That energized the bears. The market certainly didn’t waste any time reacting to the complete set of sell signals that emerged as of Monday’s close. Of course, in typical Wall Street fashion, everything is quickly overdone. Massive oversold conditions now exist in some places (but not all).

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