So much for those easy, low volatility days of 2017. So far, 2018 has been exciting if not outright nauseating for investors.
After a nasty three-day plunge in large-caps last week, stocks roared higher on Monday thanks to some aggressive over-the-weekend effort by the Trump White House to soothe worries about a possible trade war with China. In the wake of the announcement of upwards of $60 billion in sanctions, negotiations are apparently underway to close America’s $375 billion annual merchandise trade deficit with China.
Investors took heart and aggressively bought the dip despite some persistent rally weakness in Facebook, Inc. (NASDAQ:FB) on lingering data privacy concerns. In the end, the Dow Jones Industrial Average gained 2.8% for its best gain in 30 months. The S&P 500 gained 2.7%. And the Nasdaq Composite rose 3.3%.
Just a friendly reminder: Extreme price volatility, both up and down, come during periods of market weakness. Intra-day, you could see this by the way the opening gap gain of 1.8%, which was trimmed down to 0.5% before the bulls blitzed the line into the closing bell. All 11 sectors finished in the green, with technology and financials leading the way with gains of 4.0% and 3.2%, respectively.
Microsoft Corporation (NASDAQ:MSFT) blasted 7.6% higher after Morgan Stanley analysts raised their price target. Apple Inc. (NASDAQ:AAPL) gained 4.8%. FB closed its opening loss to gain 0.4%.
In other news, Lowe’s Companies, Inc. (NYSE:LOW) gained 6.6% after announcing its CEO of 13 years would be retiring. Finish Line Inc (NASDAQ:FINL) gained 31.1% after agreeing to be acquired by U.K.-based JD Sports Fashion for $13.50 a share in cash representing a 28% premium from Friday in a deal totaling $558 million.
Despite the fact the day’s gain was the third-largest points gain for the Dow Jones in history, the medium-term direction remains pointed to the downside. The volatility term structure — the difference between current and future CBOE Volatility Index contracts — remains inverted, keeping the pressure on roll yield and preventing short sellers from pushing the “fear index” down.
Gold is buoyant, with the Gold SPDR Trust ETF (NYSEARCA:GLD) rising 0.5%. European stocks were smashed. Bitcoin has fallen back to a $7,000 handle. And the dollar keeps rolling over.
Watch for a downside reversal on Tuesday.
Check out Serge Berger’s Trade of the Day for March 27.
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Today’s Trading Landscape
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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
