The VIX index, which is a measure of market volatility and a good key indicator regarding the fear factor present in the market plummeted from 40 on October 30th to 23 during the Monday trading session.
Why did the VIX index return to normalcy during a pandemic? Simply put, a vaccine that MAY work after a small sample size of testing. Wall Street exploded after news broke that a vaccine developed by Pfizer and a BioNTech, outperformed the expectations regarding protecting people from the novel coronavirus. The trial’s litmus test was set at 60 percent efficacy and the latest trials from this week showed it was more than 90 percent effective—by contrast, the; efficacy rates for the flu vaccine can be as low as 30 percent.
What were the big winners and losers amidst the news of the vaccine?
- Rolls Royce Holdings (LSE:RR) closes Friday at $2.68 and spikes to $3.45 representing almost a 30% overnight gain and closing the day Tuesday at $3.25. Even more important investors buying shares in RR rose 319% in October alone.
- Pfizer (NYSE: PFE) closed Friday at $36.40 and catapulted to $41.92 overnight upon the news of the vaccine. The gains represent almost 15%.
- Zoom Video Communications (NASDAQ: ZM) closed Friday at $500 and closed Tuesday at $375 representing a 25% loss.
- Pinterest (NYSE: PINS) had a high of $65.16 on Friday and had a low of $53.64 on Tuesday almost representing a 20% loss.
These massive swings are not representative of the overall sentiment of the market. It is the whiplash reaction by reactionary investors, mutual funds shaving pennies, day traders and shorts/longs getting caught amidst breaking news.
The fact of the matter is this, Zoom is here to stay because this pandemic has changed the way companies do business! Pinterest is no different, but the only thing that changes is the in flux of vacation pictures flooding Pinterest after Corona Virus gets under control rather than mindless scrolling.
This start of the trading week is just one more of hundreds of examples of the market overreacting in the short-term in regard to breaking news. The great news is this, the market over the long-term is eerily accurate once emotion is eradicated. So, if you are a day trader, it is heaven whether you are shorting or going long the opportunities are everywhere. If you’re a fundamental trader that likes to set it and forget it, as long as the fundamentals are sound, you’ll do great! The answer is in the old ideology found in Daoism, the middle way. Happy trading!