We pointed out a few days ago that volatility had spiked rather substantially and that “buying volatility is a late trade” and suggested “don’t buy vol when you must buy vol when you can”.

Euro Stoxx 50 volatility, V2X, is down 20% from highs we saw a few days ago. Volatility spikes as the one we saw a few days ago are many times good indicators of possible market bounces.

The Euro Stoxx 50 index has bounced 2.7% from the lows we saw a few days ago. To be truthful the trend of this index is rather dull and pretty much non existent. The shorter term trend has been down and the index continues trading within the downward sloping channel shown in the chart below.

The Basic Resources index, SXPP, still trades at the longer term trend and is very close to crawling back up above the 200 day average. Everybody hates this space at the moment, but I would look for possible bounce setups here.

Source: charts by Bloomberg