It's been an incredible week in the markets in which we've seen huge amounts of volatility that have quite frankly been driven by nothing but fear. As we approach the final trading session of the week, early market indications suggest we're in for another roller-coaster day, with Europe's main indices seen opening more than 1% in the red. The FTSE 100 is currently expected to open 80 points lower, the CAC 40 53 points lower and the NASDAQ Composite 114 points lower.
People around the world are trying to rationalise the moves and attribute them to any minor event, economic release or comment that hits the news wires, but the simple fact of the matter is that at times, there's no rationalising the irrational. These moves are being driven by fear and nothing else. Markets have lingered around these record highs for too long and investors are very uncomfortable.
I don't for a second believe that German export number, despite them being very poor, prompted a 2% decline in the US on Thursday, nor do I believe it was driven by comments from Mario Draghi or any Fed officials because to be frank, it's the same old material we've heard for months.
This kind of irrational behaviour strikes me as something that comes just before we get that big 10% correction that people have spoken about for so long that makes everyone a little more comfortable with stock market levels. This buy the dip mentality finally appears to be fading and once that goes, the decline could be quite rapid, as we've now seen on both Tuesday and Thursday.
One saving grace for the markets could be corporate earnings season which unofficially got under way on Wednesday but kicks into full swing next week. A good set of earnings could relax investors a little and take some away some of the anxiety that has crept into the markets. We've already seen some great numbers from Alcoa Inc (NYSE:AA), if that continues then all of a sudden people have reason to buy the dips again.
Unfortunately, that's not going to help us today and with the economic calendar offering little that could halt the decline, we could be in for another day of very volatile trading and potentially big losses. We're already on course for one of the worst weeks this year and it could get much worse before the day is out.
In terms of economic data, UK trade balance figures are the only notable release of the day but even then, this is only medium impact data and quite often has a minimal impact on the markets. That said, as we've seen already this week, markets have been far more responsive than normal to these figures so I wouldn't be surprised to see a disappointing number here prompt another wave of selling.
DISCLAIMER: Any views or opinions presented are solely those of the author and do not necessarily represent those of Alpari (UK) Limited, unless otherwise specifically stated. This content does not constitute investment advice.