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From the Floor: 'Today is critical' — #SaxoStrats

   • US equities crash as short volatility trade hits the wall
   • 'Official intervention is inevitable at this point': Hardy
   • 'The gold/silver ratio is just below 80, signalling underlying calm': Hansen
   • Key Dax support at 12,745 smashed, no strong support before 12,000
   • S&P 500 futures have already bounced 2.6% from their aftermarket lows

By Michael McKenna

"The low volatility regime is likely dead – 2017 and early 2018 were a crazy anomaly" says Saxo Bank head of equity strategy Peter Garnry in the wake of Monday's vertiginous selloff in US stocks.

"So far the blow up is scary but has been relatively contained" adds Saxo head of forex strategy John J Hardy, noting that the major moves were driven by fast money, or algorithmic trading and margin calls, and today's question is how slow money will respond.

"A lot of this is driven by the collapse of the short VIX trade," reports Hardy, while Garnry points to short VIX ETFs as a potential vehicle for a return to some semblance of a range in the CBOE volatility index.


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Source: Saxo Bank

"Traders seeking safe-havens should keep an eye on the JPY as well as call options on two-, five- and 10-year US Treasuries," says Hardy, who cautions that there "is no cheap way to seek protection once the volatility beast has been unleashed".

"This is the largest two-day selloff since the flash crash of August 2015," says Garnry, adding that the 12% top-to-bottom move in S&P 500 futures is likely the product of a chain reaction that started last Friday when unexpectedly strong US wage growth figures pushed US rates higher.

"S&P 500 futures are now up 2.6% from their lows," reports Saxo's equities head while technical analyst Kim Cramer Larsson says that he expects a rebound as futures bounce from their 200-day moving average.

Source: Saxo Bank

Looking at the benchmark US index from a technical perspective, Larsson says that 2,625 and 2,564 are the key levels to watch; in the German Dax index, Larsson reports that we are now in a determined bear trend with support at 12,745 having been broken.

"I don't see any strong support in the Dax until 12,000," Larsson concludes. 
Finally, Saxo commodities head Ole Hansen reports that gold is being supported by the risk-off trend while the gold/silver ratio remains just below 80 – a signal, Hansen says, of some underlying calm.

For more on the massive move across asset classes and the trends to watch today, view today's Morning Call in full. Saxo Bank strategists will be issuing reports throughout the day on

Market crash
Hold on. Photo: Shutterstock

Michael McKenna is head of editorial content at Saxo Bank


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