Random Thoughts: Volatility Rocks the Markets
What to watch for, and when.
I'm learning to fly, but I ain't got wings. Coming down is the hardest thing.
-- Tom Petty
It’s Hump Day in Gotham and you know what that means—we’re halfway home on the weekly trek toward our requisite respite. With earnings coming fast and furious, and market volatility picking up in kind, there’s no rest for the weary, at least not yet.
The way I see it, the series of "lower highs" (a sign of distribution) remains intact under S&P (INDEXSP:.INX) 1570. You will also remember S&P 1580 from previous missives—The S&P Alley-Oops—and that remains critical through a longer-term lens. Technical resistance is now tranched between S&P 1570-1610, so where you stand is a function of where you sit (as it pertains to your time horizon, risk profile, and stylistic approach).
Of course, nestled within our forward probability spectrum is the potential that bad news will continue to get shrugged off; for all I know, that could have been the sell-off, all 2.82% of it, peak-to-trough (consistent with Camp 2 discussed yesterday).
I don't believe that will prove true—remember, there are three phases of leave—but if we're to practice what we preach, discipline must always trump conviction and we should always see both sides as we continue to find our way.
- The “lower highs” discussed above.
- After covering all but 5% of my short exposure in the hole on Monday (vs. entering the week with 100% of a full SPY put position)—better lucky than smart—I rounded my September SPY puts up to 50% (of a full position) yesterday during the (uncanny) Turnaround Tuesday rally. I continue to trade around that bias, as detailed in real-time each session on the Buzz & Banter (click here for a free two-week trial!).
- Apple (NASDAQ:AAPL) is making a fresh 52-week low—which is pretty amazing when you think back to the sentiment that has surrounded this stock—proving once again that there are two sides to every trade.
- In January, we posited that Apple could "work" to $360 and if/when it gets there, I'll buy it for a trade. That sounded nuts then; not so much now, as the stock flirts with $400, down 43% since peaking at $700 in September. How about that?
- The two charts below help paint the technical picture. The first is the importance of S&P 1540, which has held a few times (note: support gets weaker with each subsequent retest).
- The second is the S&P trend line from the November lows, which we're probing today. If and when either one breaks, past support will become future resistance.
- There's been a lot of chatter about gold and for good reason; the yellow metal has been crushed of late, and the Snapper attempt yesterday was feeble at best and wreaked of forced selling. It has to bounce, right? Well, maybe, but not necessarily (see The Gold Scold). The chart below pulls back the lens on this particular commodity; to fully appreciate where we are, we much understand how we got here.
- Goldman Sachs (NYSE:GS) continues to take a five-finger sally to the downside—and the insider sales window typically opens a few days after earnings, so keep that in the back of your crowded keppe.
- The S&P lost 44 points from Thursday's high to yesterday's close; as such, 22 points (where we more or less ended the session) was a 50% retracement of that decline.
- The VXO (INDEXCBOE:VXO) was down 19% yesterday, right back at Bar Mitzvah levels (13), before ramping 30% today. Even still, I tend to steer clear of VIX (INDEXCBOE:VIX) options as there are better ways to play volatility.
- Click here for an excellent six-part tutorial on derivatives from one of the best to ever trade them. Remember, historical support is nestled in and around the VXO 10 level.
- Yes, there is a silver lining to lower crude, but PLEASE be careful for what you wish.
- On Tuesday, I will be poked and prodded from 7 a.m. - 2 p.m. as a precursor to the main event; the following Tuesday, I'm under the knife for at least one full hip replacement. That's the good news; the bad news? Insurance isn’t what it used to be; inflation in things we need, deflation in things we want—in real-time!
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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