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Daily Traders Edge

Here’s The Most Important Question At The Center Of The Stock Market Sell-off

February 13
09:49 2018

As stocks continued their attempt to recover from the worst week in more than two years, nervous bulls are probably feeling a touch of relief.

But the crucial question raised by the pullback remains unanswered: Was this a largely “technical” pullback that was merely overdue in the wake of a historic rally and an unprecedented stretch of low volatility or does it signal something deeper?

Here’s a look at both cases:

Technical shakeout

The majority opinion, which is no doubt bolstered by Friday’s bounce and the follow-through to the upside on Monday, is that the selloff is indeed largely technical in nature.

The technical argument holds that while the selloff may—or may not—have been sparked Feb. 2 by a rise in Treasury yields and a pickup in January wage growth data, the subsequent tumble into correction territory last week was driven by factors that have little to do with the underlying economic outlook or corporate fundamentals.

Namely, the implosion of the short volatility trade was seen adding fuel to market jitters. But while that made for a breathtaking spike in long-dormant volatility and appeared to trigger additional selling, there is no sign of any systemic danger.

Continue Reading at Market Watch

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