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Proprietary Trading Weekly Market Recap For Friday, August 8, 2014

|Includes: ProShares VIX Short-Term Futures ETF (VIXY)

Stocks Gyrate as Geopolitics and Central Banks Take Center Stage

Stock prices remain volatility this past week, as investors needed to absorb a combination of earnings, economic data, and central bank decisions on monetary policy as well as the ebbs and flows of the current geopolitics.

Three major central banks met this week and each kept monetary policy unchanged. The Bank of England did not issue a statement as it is their policy when nothing chances. The European Central Bank met and the press conference that followed reflected the continued dovish view of Central Bank President Mario Draghi. The stance of the ECB is a wait and see policy but they are armed and ready with a potential full quantitative easing program.

The Bank of Japan kept policy unchanged and reiterated its commitment to increase base money by 60-70 trillion Yen per year through aggressive asset purchases. The statement said the decision was taken by unanimous vote. The statement said the economy has continued to recover moderately, although it noted a decline in demand.

Following last week's better than expected GDP report, traders received additional information. The U.S. wholesale trade report revealed tiny June gains of 0.2% for sales and 0.3% for inventories that undershot larger respective prior gains of 0.7% and 0.3% in May, and 1.3% and 1.0% in April to leave a disappointing report overall. This will likely change how many view a revision in the 4.0% Q2 GDP growth figure, given a likely big $12 billion downward Q2 bump in wholesale inventories alongside a $6 billion factory inventory hit that leave a big $18 billion downward bump for Q2 inventories overall. The expected Q2 GDP growth boost reflects an expected $15 billion hike in net exports, a $3 billion boost in construction, and a $2 billion boost in equipment.

On the US employment front, the 14k U.S. initial claims drop to 289k in the first week of August defied the expected unwind of the July boost that was presumably evident with the prior 23k pop to 303k. Claims are entering August below the already-tight 296k July average, following prior averages of 315k in June and 312k in May. Payrolls face ongoing upside risk from tight claims, a firm producer sentiment and ADP trajectory, solid vehicle assembly rates into August, and an ongoing consumer confidence climb back above mid-2013 levels.

Gold remains within a large consolidation on the weekly chart, but the yellow metal is making some bullish waves with a surge on the daily chart. The weekly Spot Gold is seen crossing the 1300 level at least a dozen times since June 2012. Overall, gold prices are in a consolidation range within a downtrend, and a consolidation within a trend is typically a continuation pattern. This means the consolidation is a bearish continuation pattern.

Volatility remained elevated with the VIX hovering near 4-month highs. The VIX measures the implied volatility of the "at the money" strike prices on the S&P 500. The higher the implied volatility the more it cost to purchase options and buy protection against an adverse move in the S&P 500 index.