Global Markets Sink as Risk Aversion Deepens

Key Takeaways:

*Global markets tumbled as investors fled risk assets, driving the VIX above 20.00 and pushing Wall Street’s Fear & Greed Index deeper into “fear” territory.

*The U.S. dollar climbed above 100.00 and Treasury yields rose, reflecting a rush toward liquidity amid growing correction fears.

*Michael Burry’s fresh bearish call and new short positions heightened concerns that the market’s recent rally may be unsustainable.

Market Summary: 

WGlobal financial markets pivoted sharply risk-off during the latest session, driven by mounting investor concerns over a potential broad-based correction. A flight to safety triggered substantial outflows from risk assets, resulting in broad-based losses across Wall Street with all three major U.S. equity indices closing firmly in negative territory.

The market anxiety was further reflected in key fear gauges. The CBOE Volatility Index (VIX) surged above the psychologically significant 20.00 level, marking its highest reading in a month. Concurrently, Wall Street’s Fear and Greed Index deteriorated further, underscoring the rapid unwinding of risk appetite.

The sell-off was notably pronounced in non-yielding and speculative assets. Spot gold slumped 1.74%, while Bitcoin, the leading cryptocurrency, breached the symbolic $100,000 level for the first time since June, highlighting the pressure on liquidity-sensitive instruments.

Adding weight to the negative shift in sentiment, prominent investor Michael Burry of The Big Short fame issued a fresh warning regarding an impending market bubble. His fund, Scion Asset Management, disclosed establishing significant short positions against the market, amplifying fears of a sustained correction and recalling his prescient bearish calls during previous crises.

In the flight to safety, the capital flooded into traditional havens. The U.S. dollar index rallied decisively above the 100.00 mark, reaching its strongest level since August. Meanwhile, long-term U.S. Treasury yields continued their upward trajectory amid strong demand for sovereign debt.

With U.S. equities having advanced more than 10% year-to-date before this pullback, the current market dynamics suggest the early stages of a potential material unwind. Traders are advised to exercise heightened caution, as the convergence of technical breakdowns, soaring volatility, and high-profile bearish positioning may signal a more profound inflection point for global risk assets.

Technical Analysis

Dow Jones, H4:

The Dow Jones Industrial Average continues to trade within a defined near-term downtrend channel, increasing the probability of a test of its key liquidity zone around the 46,650 mark in subsequent sessions. This short-term bearish structure persists even as the broader technical picture retains elements of a longer-term uptrend, provided the index holds above its primary ascending trendline.

The convergence of the current downtrend with the long-term dynamic support creates a critical technical juncture. A decisive break below the 46,600 support level would be a significant technical development, potentially signaling a failure of the broader bullish trend and opening the path for a more profound correction.

Momentum indicators affirm the prevailing near-term selling pressure. The Relative Strength Index (RSI) has declined towards oversold territory, while the Moving Average Convergence Divergence (MACD) has completed a bearish crossover below its zero line. This alignment suggests bearish momentum is currently dominant. Consequently, any near-term rebound from the 46,650 liquidity zone is likely to be viewed as a technical correction within the prevailing downtrend unless it is accompanied by a sustained break back above key channel resistance.

Resistance level: 47,640.00, 48,225.00

Support level:46,600.00, 46,178.00

VIX, H4

The CBOE Volatility Index (VIX) has established a firm technical base, finding support near the 16.50 mark and subsequently reversing its prior downtrend. The index has rallied more than 18% from its recent lows, culminating in a decisive break above the psychologically significant 20.00 level. This breach signals a major shift in market sentiment and confirms a bullish technical breakout for the fear gauge.

The underlying momentum appears to be strengthening considerably. The Relative Strength Index (RSI) is now approaching overbought territory, reflecting the intensity of the recent buying pressure. Simultaneously, the Moving Average Convergence Divergence (MACD) indicator continues to trend higher after completing a bullish crossover above its zero line. The alignment of these momentum oscillators firmly supports the constructive near-term outlook for the VIX, suggesting that elevated volatility and risk-off sentiment may persist in the immediate future.

Resistance level: 20.40, 21.88
Support level: 19.25, 18.00