MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL, GOOGL, NFLX
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.
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.
When we look at the term structure of the S&P 500 options market, that too suggests that volatility is expected to fall.
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.
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.
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.
For the most part, the same holds in the QQQs.
S&P 500 (SPX, SP500)
As for today, it was another case of the machines playing fill the gap. Gap higher, fill it and move on. I even said it today on the chat board at 10:20 am.: we are failing at resistance at 2670. I think we fill the gap to around 2650. before we move higher again. Or at least half the gap. That is typical ALGO Playbook.
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 just continues to cling to this $1,620 level, which I must say is very impressive given the market volatility.
Netflix continues to hold its long-term uptrend.
Facebook continues to hold $140.
The same is true of Alphabet.
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.
Apple for better or worse has held the $164 low as well. I wrote up premium article on Thoughts On Apple Following The Qualcomm News
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.
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.
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sp500, volaility, volume, fang, facebook, amazon, netflix, alphabet, apple, microsoft