Ice in water, iceberg in blue ocean

Stocks Push Higher On November 7, 2022 As The VIX Continues To Melt

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11/7/22

#STOCKS – $MCD, $GS, $TSLA

#MACRO – $VIX, $SPY, $TLT, $SPYG, $SPYG

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https://video.foxbusiness.com/v/6315118870112

 

Stocks finished the day higher on Monday, following through from Friday’s rally. Yields were higher across the board, and the dollar was again weaker. Still, the S&P 500 was able to generate a 1ish% rally. The market seems to be retracing some losses from last week on a continued decline in longer-dated implied volatility and dollar weakness.

But the concentration of implied volatility continues to build up for the November 11 expiration date for the SPY ETF.

So again, this is a sign that the market is assigning a lot of risk to the CPI report. Instead of buying longer-dated hedges, traders are focused instead on the “day of risk,” which is why the VIX index has been falling steadily. Maybe the feeling is to hedge yourself for the day of and worry about what’s next after the fact.

TLT

The TLT was smashed again, and the ratio of the SPY to TLT was back to the upper end of the range. It indicates that stocks are overvalued to bonds, and the further this ratio rises, the more likely it is that stocks reverse hard.

 

SPYG to SPYV

The growth-to-value ratio is closing in on its 2019 highs, indicating that the reset is nearly over or the worse is still to come. But the reset is not over just yet.

Tesla (TSLA)

Tesla had a lousy day falling by 5% and closing below support at $209. It was a significant break, as that $200 to $205 had held up very well for several weeks, and the fact that it broke today suggests there is further down in store for the stock, potentially down to $181.

Goldman Sachs (GS)

Goldman Sachs has been one of the stocks leading the Dow higher after results. I don’t understand the thought process here. The interesting thing about Goldman is that the VIX On Goldman has collapsed, and the price action looks like short-covering. We should find out soon if short-covering is the reason because the VIX on Goldman is pretty close to the bottom of the range.

Mcdonald’s (MCD)

Finally, Mcdonald’s hit a new all-time high just today, which is shocking in this environment. But what is it telling us about inflation after the company reported blowout same-store sales comps in the third quarter of 9.5% versus estimates of 5.8%? It is probably not a good thing when it comes to inflation.

Good Night

Mike

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