How Far Can Equities Sell Off?
I want to take a moment and break down the drivers behind the equity sell-off today and explain HOW this sets up the risk reward for next week.
One of the key things to note about the price action over the last 2 weeks is that volatility was compressing as equities drifted to the upside. When this happens, it allows people to use more leverage and tighter stops in their exposure. This is why when you have volatility expand, it can amplify the move since positioning needs to readjust to the higher volatility. As this lower volatile period occurred, we had TWO pieces of news by Trump functionally saying China isn’t playing ball in trade, and he’s bringing tariffs back on the table. Trump announced this at the beginning of the trading day, which caused the initial move, and then a second time after cash equity close, which caused futures to push down even further in their after-market session.
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