It was another crazy day of trading activity. First, we were up, then we were down, then up, then down. You have Trump yelling at Schumer and Pelosi in the White House. You can’t make this stuff up. If you haven’t seen this video, you have to watch it!  Can you image the skit that SNL is going to do? Poor Pence, he is just sitting there.
I hate to say it, but this is just a preview of what’s to come. This is just the tip of the iceberg. Anyway enough with politics.
VIX
Moving on I thought we should look at the VIX curve, yeah the VIX curve, maybe I’m making the name up, but anyway, sometimes you need to improvise. I took data from CBOE to plot the futures contracts for the VIX, and we can see the contracts are in backwardation. It means that the market is expecting volatility to settle down shortly.
(CBOE)
When we look at the term structure of the S&P 500 options market, that too suggests that volatility is expected to fall.
(Trade Alert)
Then of course when we look at the VIX itself, it hit technical resistance around 26 and has since backed off.
So what does it mean for the equity market? Well, I’d hope it means that this crazy volatility will come to an end an soon. I do think this market is starting to reverse itself. When looking around the marketplace, we will see that there are similar technical patterns continues to play out.
Volumes
The first thing I started to notice is that volume levels are beginning to fall considerably. Look at the volume decline in the QQQ ETF over the past month.
The same can be seen in the Russell IWM ETF, this despite the Russell falling to its lowest level in 2018. Volume has stayed below the peak in October.
The declining volume would tell me that seller’s are likely starting dry up.
Range Bound
Additionally, the next chart shows you how the S&P 500 pretty much has been range-bound this entire year, using the SPY chart. So unless something is about to materially changes there is likely a good reason the stock market finds these sudden bids during the steep sleep-offs. It’s likely because the “market,” as I’m showing you, knows the index is at the bottom of the range.
As I noted in the morning commentary 2,670 was the path of least resistance, but as we now know that is where we failed. What happens tomorrow? I have no clue at the moment.
Amazon (AMZN)
Amazon just continues to cling to this $1,620 level, which I must say is very impressive given the market volatility.
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So despite all the market volatility and despite the S&P 500 hitting fresh lows below October. The FANG stocks have held their previous lows very well. To me, that is a bullish sign.
I know it is tedious to look at the FAANG stock as much as we do but consider of the top 10 holdings in the SPY ETF, which represents the S&P 500, the FAANG’s are 40%, with Facebook, Amazon, Apple, and Alphabet in that list. I’m sorry, but if these stocks aren’t rising, then the market isn’t going up. Microsoft is also in this group, although Microsoft has been the rock.
Chips SMH
Even the semiconductor SMH ETF is holdings its previous lows.
I’m sorry there are plenty of signs there is a bottom forming, and I continue to get more bullish.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results
sp500, volaility, volume, fang, facebook, amazon, netflix, alphabet, apple, microsoft
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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