Here We Are Again, The Top And Bottom End Of The Range

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February 3, 2021

STOCKS – MSFT, ADBE, DOCU

MACRO – SPY, VXX

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So here we are again. The VIX is back to 21.8, basically the very bottom of the range. Meanwhile, the S&P 500 is back at the top of the range. No pause in between, just a vacuum in both directions. The market’s behavior is beyond strange; it functions in one of the mechanical, algorithmic manors I can remember.

The amount of options volume that trades daily is jaw-dropping. But that is what keeps implied volatility levels and skew extremely high when looking across all stocks. All of this options volume will make it very difficult for the VIX to return to pre-pandemic levels because Implied volatility will remain high for dealers to properly account for all the added risks they are taking on.

So with the VIX at 21.8, maybe it drops to 20. I doubt it drops back to 14, and if that is the case, how much further can the S&P 500 index rise? It a tough question, but clearly, much of the energy the S&P 500 index generates is from implied volatility levels falling. If the VIX is at the bottom of the range, then implied volatility levels aren’t falling.

The S&P 500 filled the gap yesterday along with a weak close. Today, the index was able to move right thru that 3,850 level like a hot knife through butter. So it means the next level to towards would come around 3,890 to 3,900. That is where the trend line was broken late last week. That would be the place the index could pause.

DocuSign (DOCU)

DocuSign has been trading in a very well defined trading channel. Whether the stock should be valued here or not is a separate question, but the upper end of the range is around $275, and that is probably where it will head over the short-term.

Adobe (ADBE)

Adobe might have a pretty bullish pattern forming. It needs to clear about $500 for a breakout.

Microsoft (MSFT)

Microsoft still has a fairly good shot of making it to $255.

-Mike

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