Over the past five months we have seen volatility steadily decline as stocks and commodities rise in value. The 65% drop in the volatility index is now trading at a level which has triggered many selloffs in the stock market over the years.
Once a support level is broken it then becomes resistance. So if that holds true with the current move in the dollar we should see stocks and commodities find a short term bottom and continue higher today or tomorrow from the looks of things.
Expect a bumpy ride for both stocks and commodities in the first quarter of 2012. With luck gold will pull back shaking short term traders out just before it bottoms. This will position for a strong rally buying into their panic selling.
If central banks around the world continue to print money there are only a few places to hide. Precious metals and other commodities like oil will vastly outperform stocks in the long run if the dollar continues to slide.
It's amazing how many people like to trade the VIX using ETFs. The best trade from followers thus far was an 8% gain in TVIX which was bought four days ago anticipating the pop in volatility which I had been talking about last week.
The big money players, like hedge fund managers, are finished for the year. They're sitting on the sidelines enjoying the holiday season while waiting for their year-end bonus checks. Let's take a quick look at how the week finished.
The past few months have been tough for those holding precious metals stocks, PM futures contracts or physical bullion. With silver trading down 41%, precious metals stocks down 30% and gold 15%. It has people scratching their head.