Stocks’ rally set to run as fear fades

The Pak Banker - - International3 -

NEW YORK: Europe's sov­er­eign debt cri­sis will still hang over global mar­kets this week, but on Wall Street, in­vestors will not be afraid to bet on stocks.

Wall Street has shown its abil­ity to hold onto gains, or quickly re­cover from losses this week de­spite Europe's debt woes, sug­gest­ing that in­vestors are con­fi­dent of a sus­tained rally.

"When things don't fall apart on bad news, you know that the mar­ket is no longer vul­ner­a­ble.

The over­all sen­ti­ment is pretty solid," said Randy Fred­er­ick, di­rec­tor of trad­ing and de­riv­a­tives at Sch­wab Cen­ter for Fi­nan­cial Re­search in Austin, Texas.

The out­stand­ing put-to­call ra­tio on in­dex op­tions, heav­ily fo­cused on the S&P 500 bench­mark, dropped from 1.32 last week to 1.29, show­ing bullish signs for next week.

The ra­tio, which is al­ways greater than 1, is the pri­mary hedg­ing ve­hi­cle for in­sti­tu­tional in­vestors. The ra­tio rises with a mar­ket rally as the pos­si­bil­ity of a pull­back also in­creases.

"The abil­ity (to not fall apart) is help­ing in­vestors re­main up­beat on short-term prospects for stocks. We may not see this con­tinue un­til the end of Jan­uary next year, but the month of De­cem­ber cer­tainly looks en­cour­ag­ing."

The CBOE Volatil­ity In­dex or VIX (.VIX), Wall Street's so-called fear gauge, fell de­spite a de­cline in stocks ear­lier in the day as traders saw fewer rea­sons to buy pro­tec­tion.

The in­dex, which usu­ally moves in­verse to the S&P 500 bench­mark, strayed from the re­la­tion­ship and closed at its low­est since April.

The iPath S&P 500 VIX Short Term Fu­tures ex­change­traded note (BARC.L) (VXX.P) also notched a new year low of $41.51 on Fri­day. The ETN, which of­fers di­rec­tional volatil­ity ex­po­sure, is based off of the front twom­onth fu­tures on the VIX.

"There is def­i­nitely a trend in the VXX to try to get short in the ETN," said Dan Dem­ing, a VIX op­tions trader at Stut­land Eq­ui­ties.

Fears that Europe's debt cri­sis could spi­ral out of con­trol have pushed stocks off two-year highs hit ear­lier this month. Last week, the S&P 500 was down 3 per­cent from Novem­ber 5. -Reuters

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.