Spikes in Market Volatility

The Dow Jones fell -550 points in the early going due to the disappointing CPI report. But, by day’s end, it had risen nearly 1400 points from that early morning low and closed up +828 points. That rally appeared to be sparked by technicals: oversold conditions, short covering (the most shorted stocks rose +7%), and a bounce off the 50% reversal of the prior “Bull Market.” In addition, markets were buoyed because the Bank of England (BoE) intervened in the currency market to support the British pound, and because there was a recommendation by staff at the European Central Bank (ECB) to limit rate hikes. 

A near 1400-point swing in the Dow Jones Industrial Average doesn’t happen often, but one never sees such volatility in “Bull Markets,” only in “Bears.” So far in 2022 (through October 17) there have been 31 sessions where the Dow Jones rose +400 points or more. Meanwhile the index, itself, is down over -6,000 points. In the 2011-2017 six-year bull market, there were a total of 5 such +400-point sessions. The volatility reminds us that it is premature to call a bottom in stocks when the Fed is still aggressively tightening, and the nasty part of the Recession is still ahead.

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