Pre Market: Stocks Drift Higher as Volatility Plunges

US equities are trading on three-week highs today before the opening bell, as war fears continued to ease, the housing market and industrial production provided a bullish boost, and China slightly tightened financial conditions overnight. Volatility, as measured by the VIX is in a freefall thanks to the choppy but positive price action, as the fear index is back to 15 after above 25 in late March.

Volatility Index (VIX), 4-Hour Chart Analysis

The slight bullish bias that we have been pointing out for over a week continues to persist, as the oversold readings and the bearish sentiment that developed during the re-test of the February lows continue to ease.

Late shorts who played a break-down got cold feet, and it seems that the max pain trade still favors bulls here, although the momentum of the move is suspiciously weak, with trading volumes also dwindling on the way up.

Dow, 4-Hour Chart Analysis

While the short-term trend is positive and the major US indices moved out from the choppy triangle consolidation patterns, traders should keep an eye on the possible negative divergences that could precede the next downswing. Asian and European equities are already lagging behind, and should the longer-term bearish pressures prevail, we could be back to the late February setup when US stocks ignored international weakness for weeks.

Nikkei, 4-Hour Chart Analysis

With that in mind, it still might be early to open shorts (although it’s a much better setup than near the lows), while bulls could hold on to their positions until the short-term trendlines are intact, even as the current move could turn out to be a fake-out rather than a healthy bullish thrust.

Commodities Tick Lower as Currencies Flatline

Gold Futures, 4-Hour Chart Analysis

Gold is under pressure amid the gradually improving sentiment, although the precious metal is still not far off the $1350 level, despite the safe-haven outflows of the recent days. The pullback of the Japanese Yen also halted, as Asian markets are not enthusiastic about the rally, and with the EUR/USD pair still in a limbo, trading activity in forex markets is very low.

Crude oil retreated from its more than three and a half year high, with the WTI contract trading with a $65 handle again, but commodity currencies are little changed amid the slight risk-on shift.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.