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What an incredibly boring and obvious day from when I first got out of bed. The second thing I saw this morning after checking the Asian markets overnight was the VIX, which was up 5.5%. My immediate thought was, “You have to be kidding me.” We will just be grinding volatility lower all day and pushing stocks up.
Sure enough, the VIX finished the day down almost 50 bps after starting the day higher by about 5.5% to close the opening gap. I have not figured out what causes that gap to happen yet; it is one of the great mysteries of the market.
It was interesting to see the S&P 500 climb to 4,784 today and close at 4,774. The reason is that we were briefly able to take out the highs from last week, only to close below all the highs. When markets trade higher all day and then fade into the close, it is generally not a positive thing, and when it happens around a previous high, it carries an extra layer of negativity.
Additionally, you can now count the move higher as being complete with a 5-wave structure up, and wave 1 is equal to wave 5. So one could argue, if they so choose, that the retracement higher from last week’s drop is now over.
Anyway, the move lower into the close was driven by a sell-imbalance on the close, which was responsible for the market’s drop in the final minutes of trading. If the S&P 500 can get above today’s highs fairly quickly tomorrow, it could break out above the trading range since the middle of last week. Checking where the VIX is in the pre-market will likely give a clue.
-Mike
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