By Alessandro Albano
Investing.com – Thursday’s session on Wall Street kicked off the day’s rally in European and Asian stocks after several bearish sessions, with gains of 1% and gains of 3.3%. But what triggered the US index reversal during trading?
While the gain +2.6% after recovering from a 2.4% decline, analysts offered several explanations. The 40-year high reading initially triggered strong selling in futures, followed by an incredible rally that saw US indices recover more than 5% from their lows.
According to Bloomberg, which has been collecting this kind of data since 1990, the market has never before seen such extreme values in either direction in a single trading day.
The rally in , which gained over 800 points yesterday, coincided with a test of the late September lows, while the floor of , was about 20% of the high seen over the summer, so the move may have had a huge technical component, at least initially.
“What followed was extraordinary and may have been exacerbated by short covering, perhaps even a bit of panic,” comments Craig Erlam, principal analyst at Oanda.
Some are motivating the rally with support from the daily charts or hedging from options traders who had to liquidate short positions as investors began to take profits on put options during the previous downturn.
Others, on the other hand, have positive expectations for the start of the earnings season. “It’s a combination of hedging short positions and writing put options,” Danny Kirsch, head of options at Piper Sandler & Co, told Bloomberg. “It’s a very well hedged event. Trading is like a previous event, you sell your hedges and help the market rise.”
This recovery could suggest that the market has bottomed out for now, but, explains the Oanda analyst, “given the extent of the declines since the peak in August, it does not necessarily mean that the worst is suddenly behind us.”
Not when inflation is so tenacious, the labor market so tight, and the Fed so determined to make more aggressive hikes.”
The coming weeks may therefore depend on how investors have positioned themselves and how they react to the earnings season, which starts today with quarterly updates from JPMorgan (NYSE: ), Citigroup Inc (NYSE: ) and Morgan Stanley (SNEEZE:).
“Needless to say, we enter this season with very low earnings and outlook, both positive and negative. It’s only about how pessimistic companies will be and how prepared investors will be. close your eyes”, emphasizes Erlam.
According to the London-based broker, “it all depends on how high the bar is, and given how the US stock markets have performed recently, I don’t think there will be much light below.”