Anxiety grips Wall Street: DOW plummets, VIX jumps, Yields soar

Economic storm clouds appear to be gathering on the horizon. With DOW experiencing its most significant drop since March and key Treasury yields touching multi-year highs, whispers of a potential recession are becoming more audible. This is further exacerbated by the behavior of VIX, often dubbed the “fear index”, which indicates heightened market apprehensions.

DOW plummeted by -430.97 points, or -1.29%, nudging it into negative territory for the year, now lagging by -0.4%. This downturn wasn’t isolated to stocks. The 10-year yield reached a staggering 4.8%, a pinnacle not seen in 16 years. Similarly, 30-year yield hit a peak of 4.925%, levels of which we haven’t seen since 2007.

The narrowing gap between the 2-year and 10-year Treasury yields, contracting to a mere 35 basis points from over 100 basis points a few months earlier, is especially concerning. This normalization, or “de-inverting”, of a vital part of the yield curve is often viewed as a precursor to economic downturns, igniting debates on the imminence of a recession.

Adding to the market’s jitters, VIX has climbed for three consecutive sessions, momentarily crossing the critical 20 level and finishing at a six-month high. Values below 20 on the VIX generally signify market stability, but as it surpasses this threshold, it denotes an environment fraught with investor unease and skittishness.

Back to DOW, it’s now pressing and important near fibonacci support at 38.2% retracement of 28660.94 to 35679.13 at 32998.17. Sustained break of this level will strengthen the case that fall from 35679.13 is reversing whole rise from 28660.94. This decline could be viewed as the third leg of the long term pattern from 36952.65 high. Deeper fall would be seen to 31.429.82 support, which is close to 61.8% retracement at 31341.88.

In any case, near term outlook will stay bearish as long as 34029.22 support turned resistance holds. The rest of the week, with ISM services today and non-farm payrolls release on Friday, will be crucial.