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Stocks managed a snapback rally on Monday, recovering from Friday’s sharp sell-off. Numerous technical indicators have triggered, suggesting more downside likely lies ahead—but if fundamentals haven’t mattered, perhaps technicals are losing their relevance now, too.
Typically, a break below major support and trend lines on heavy volume is a bearish signal. Notably, today’s rally occurred on roughly half of Friday’s volume.
The 10-year wasn’t feeling any better today about the economy than it did on Friday, dipping another 2 bps to close at 3.18%.
Judging by the dollar’s performance against the yen today, it doesn’t seem like any minds were changed there, either.
The economically sensitive areas of the market and those influenced by Fed policy clearly didn’t feel any better today, so why the rally in stocks? Most likely it was driven by the pullback in volatility, which surged significantly on Friday—making today’s correction hardly surprising. Whether the VIX slips back below 16 is debatable. We’re no longer in a strong “vol supply” period, especially as earnings season winds down and both 10- and 21-day realized volatilities trend higher. It seems unlikely, but markets have a way of surprising everyone.
The MOVE index, a measure of bond market volatility, rose for a second consecutive day. Although it’s been generally trending lower since early April, when the Fed kicked off this rate cycle in February 2022, the index has rarely dipped—and more importantly, stayed—below 88 for long. This makes the MOVE index an important indicator to watch: if it starts climbing again, the VIX is likely to follow.
-Mike
Terms by ChatGPT
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Technical Indicators: Metrics derived from historical price and volume data, often used to predict future market movements.
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Major Support and Trend Lines: Price levels where historically buyers have consistently stepped in, or trend lines indicating the general direction of a market or security price.
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Bearish Signal: An indicator suggesting prices are likely to decline.
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bps (basis points): A common unit of measure for interest rates, equal to 0.01%.
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10-year Yield: The interest rate on the 10-year U.S. Treasury bond, commonly watched as a barometer for economic sentiment and Fed policy expectations.
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VIX (Volatility Index): Measures the expected volatility of the U.S. stock market (S&P 500) over the next 30 days.
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MOVE Index: A measure of volatility specifically in bond markets, reflecting investor uncertainty about interest rates.
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Realized Volatility: Actual observed volatility calculated from historical market price movements.
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Vol Supply: Periods in the market cycle characterized by plentiful availability (supply) of options and derivatives, typically associated with lower volatility.
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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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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