Volatility Strikes...

What exactly does a volatile market mean?

A lot of amateurs actually mistake a volatile market to mean a bear market. Yes, volatility in terms of options implied volatility (vega) represented in the CBOE VIX do rise when stocks go down but that still does not make a bear market a volatile market. A volatile market is a market where there is a lot of over-reaction in the market resulting in wide price fluctuations. Over-reaction is the central theme of volatile markets. Big ups on unfound optimism and big downs on the slightest pessimism. Real bear markets are extremely rare and goes down nice and smooth like the Chinese market right now, with very little volatility. There are almost no more big ups and downs and over-reactions, only down and down and down. So, what is the market condition in the US market right now? It is in a bearish inclined volatile market.

Volatility hit the US market today once again as the Dow and NASDAQ formed an intraday range of about 4%. Again, news was mixed with nothing worth referencing. The Dow merely continued its neutral trend but the NASDAQ is worth a second look. Remember the support level I mentioned yesterday? Yes, NASDAQ rebounded off that level today despite falling oil prices (actually, oil price doesn't really determine the way the NASDAQ composite moves. It only cause temporary disturbances when oil price moves too strongly suddenly.). This is the first test of the 2200 support level. It needs to hold up against this level over the next few trading days before it can be confirmed. Immediate support for the NASDAQ composite is now at 2200 with immediate resistance at about 2400, coinciding with its 200DMA.