Now, keep in mind, short-term volatility is what it is (unpredictable), does not make for long-term trends (although over time it certainly offers signals), and of course the day is still very young.
I suspect that, for the moment, news that the Chinese central bank is set to inject a virtual record level of liquidity as markets open has traders re-thinking their plans to short futures this afternoon, and equities come tomorrow morning. Assuming, that is, that, as usual, they take their cue from currency traders -- and assuming that the pairs continue to trade as they have this morning.
Key currency pairs to watch are USD/JPY (US dollar/Japanese yen), the dollar typically declines against the yen when uncertainty is high, AUD/USD (Australian dollar/US dollar), the aussie tends to fall against the U.S. dollar on high uncertainty, and AUD/JPY -- the most telling -- aussie falls against the yen when times are troubling.
Click each insert below to enlarge: White line = currency pair, yellow = S&P 500 Index. Green rectangle in lower right represents this morning's move:
USD/JPY
AUD/USD
AUD/JPY
Present (subject to change of course) sanguineness of currencies notwithstanding, Chinese equity futures (white line) are set to open roughly 8% below where Chinese equities traded in the cash session when their markets were closed on January 23rd. Presumably, it could be worse:
Bottom line: Look for the coming week to be unusually volatile, in either direction (or both).
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