What to watch for on Friday:
1) China ETFs for a hint of how China might trade tomorrow. ETFs that track overseas stocks are forward-looking pricing mechanisms, not backward-looking. ETFs that track mainland China (ASHR, for example), were down 8 percent at the open, but rallied right after the U.S. open as the Chinese government announced they were suspending circuit breakers there.
They have cut those losses by more than 40 percent midday, but at down roughly 5 percent still anticipate a down open in China.
2) December nonfarm payrolls tomorrow will be a good sign of what the Fed might do short-term. Remember, the trading community is pricing in two, at most three, rate hikes next year. But the Fed consensus is closer to four rate hikes. Right now markets seem to be pricing in a roughly 40 percent chance of a rate hike in March. A number well above consensus (currently 210,000) might very well be met with a negative reaction.
3) A spike in volatility. The CBOE Volatility Index is elevated at 24 (up from 17-18 at the end of the year), but not that much. That contract--which reflects volatility expectations 30 days out—is higher than VIX futures contracts several months out, most of which are around 20.
This condition, known as "backwardation" is unusual for the VIX, and suggests investors think this elevated volatility is not a permanent feature.
As for the absolute level...now at 24...I think it's likely the VIX would be substantially higher (over 30) if there was a feeling that this was all about the U.S., rather than China.