U.S. stocks started the day higher as Asian equities were down, led by China, where stocks were down 3.7% after the Chinese stock market has been closed for Golden Week. European stocks followed suit as the European Central Bank rejected Italy’s budget proposal. Not to be outdone, European bank stocks fell to their 18-month low. Oil was rather flat in early trading, despite news that China has ceased all imports of U.S. oil.
After dropping below its 50-day moving average, the S&P 500 rallied to close above it. The Nasdaq-100 slipped below its 100-day moving average, but buyers stepped in to push it back over. The Russell 2000 dropped below its 200-day moving average but closed above it. U.S. investors continue to buy every drop in the market as if the U.S. economy is immune to the weakness from the rest of the world.
The reason stocks bounced today was due to volatility. The VIX volatility index came right up to the level where back in February that caused a huge spike in volatility. Should that happen again, stocks will aggressively sell off. There are many highly-leveraged market participants who do not want to see that happen yet, so they were forced to buy stocks and short volatility.
The bond market was closed today for Columbus Day but should reopen tonight with the Japanese stock market. There are eight Treasury auctions scheduled for the next three days, which should further drain liquidity from the market. These auctions should also provide some direction for the bond market going forward.
Physical gold was dumped in overnight trading, sending gold down to $1,190/oz. The gold and silver mining stocks reacted accordingly but recovered those losses.
Agricultural commodities continue to move higher on low volume which is a sign of strength. Should they continue to rise, short sellers should get flushed out. Higher agricultural commodity prices are coming.