The Stock Market Loved The Election Results. Until It Didn't.

It was a strange day in the markets, with the S&P 500 dropping by around 4.4% while the Nasdaq 100 fell by 6.4%. We went from the markets lovin’ the election to not so much. Perhaps that’s because yesterday’s rally had absolutely nothing to do with the election and more to do with a reset in implied volatility, as the VIX 1-Day fell back to earth.

Anyway, the VIX 1-Day closed today at 36.8, implying a one-day move of about, oh, 2.3%. The problem here is that some of that nearly 25-point rise in the VIX 1-Day was likely due to tomorrow’s jobs report, but most of it was probably driven by the AI trade melting down.

This means we may get a nice rebound tomorrow once the jobs report is released and some of that event-related volatility comes out of the market. The problem is that I have no idea where futures will trade overnight or where the index will be at 8:30 a.m. ET. So I couldn’t tell you whether the index will finish the day higher, lower, or sideways.

Technically, the Nasdaq 100 is oversold and could bounce. The last time the Nasdaq 100 fell below its lower Bollinger Band while its RSI dropped below 30 was in March. So, given how elevated volatility is and how oversold the index has become, tomorrow could be a good candidate for a rebound, particularly if some of that implied volatility comes out of the market following the jobs report.

The NASDAQ 100 also cut through its 200-day moving average, like it was made of paper.

The S&P 500 is still holding above 7,300, which has been the lower end of its trading range for some time. Meanwhile, the RSI remains above 30, and the 200-day moving average continues to hold as support. So, from a technical standpoint, things look much better for the S&P 500.

Anyway, we will see what tomorrow brings. If there is no bounce tomorrow, then that is not a good sign.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

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Glossary by ChatGPT

200-Day Moving Average: A long-term technical indicator representing the average closing price of a security or index over the previous 200 trading sessions.

Bollinger Bands: A technical indicator consisting of a moving average and upper and lower bands typically set two standard deviations away, used to assess volatility and relative price extremes.

Event-Related Implied Volatility: The additional expected price volatility reflected in options ahead of a scheduled event, such as an employment report or central bank announcement.

Implied Volatility: The market’s expectation of future price fluctuations derived from options prices.

Lower Bollinger Band: The lower boundary of a Bollinger Band indicator, often used to identify unusually weak price action relative to recent trading history.

Oversold: A technical condition in which an asset has experienced substantial selling pressure, potentially increasing the likelihood of a short-term rebound without guaranteeing one.

Relative Strength Index (RSI): A momentum indicator measuring the speed and magnitude of price changes on a scale of 0 to 100, with readings below 30 commonly interpreted as oversold.

Support Level: A price area where buying interest has historically been sufficient to slow or reverse a decline.

VIX1D: The Cboe 1-Day Volatility Index, which measures expected S&P 500 volatility over approximately one trading day.

Volatility Crush: A rapid decline in implied volatility, often following the resolution of an anticipated event, which can influence options-related hedging flows.

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The Stock Market Loved The Election Results. Until It Didn’t.

Glossary by ChatGPT

Disclosure