Reuters/New York

 

 

Watch out for intraday swings because it’s going to be wild. Cataclysmic events, including a nuclear disaster in Japan, uprisings in the Middle East and North Africa and the possibility of more currency market intervention will keep investors reacting to headlines.

“This is an extremely news-driven market. Investors are on the edge, and they are reacting to every headline they see,” said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Texas, Austin.

Many investors said the sudden increase in uncertainty had caused a corresponding rise in trading based on emotion rather than facts or fundamentals.

“Considering how the market’s been moving recently, I wouldn’t be surprised to see the S&P moving 1 to 1 ½% both up and down in less than couple hours next week. That’s how much volatility there is,” said Ryan Detrick, senior technical analyst at Schaeffer’s Investment Research in Cincinnati, Ohio.

The volatility on Wednesday caused the S&P 500 to erase its gains for the year and then rebound more than 1% on Thursday.

Besides global developments next week, markets will get to respond to economic data on US housing, gross domestic product and durable goods orders, but these may be relegated to second place behind traders’ reaction to the latest headlines.

The CBOE Volatility Index VIX, Wall Street’s so-called fear gauge, shot up nearly 30% on Wednesday when equities swooned after confusing statements from officials on the situation in Japan.

The gauge rose nearly 60% above its 50-day moving average, which has happened only a handful of times in the past 20 years.

Despite the 21% rise in the VIX for the week, traders bet the fear gauge would move higher. Call buying outpaced put buying on Friday, with about 232,000 calls and 111,000 puts, although both were below their average daily volume, according to options analytics firm Trade Alert.

The VIX, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500. The heavy call volume suggests expectations for more anxiety in the future.

“What makes this so difficult is that these issues are beyond the expertise of the market,” said Russ Koesterich, investment strategist at BlackRock Inc, which oversees $3.56tn.

“It’s hard to say how severe the situation in Japan will get or how stable things will become in the Middle East, and that increases the downside risk.”

Some market participants said the uncertainty was even more dramatic than the “flash crash” in May or the 2008 financial crisis.

Wall Street ended higher on Friday, but indexes finished lower for the week. The Dow ended down 1.5%, its biggest weekly decline sine August. The S&P fell 1.9% and the Nasdaq lost 2.6%.

“The stock market broke down this week, violating support levels and generally turning the technical indicators bearish,” said Larry McMillan, president of McMillan Analysis Corp in a report.

The equity-only put-to-call ratios McMillan tracks have confirmed sell signals and remain bearish.

Economic reports next week will include existing home sales and new home sales due on Monday and Wednesday, respectively. Durable good orders and jobless claims are due on Thursday and GDP is due on Friday.