Over the weekend I posted that I’d be looking at a possible buy of Call Options on the CBOE S&P 500 Volatility Index (VIX) today–depending on how the VIX behaved in the Monday action. Today the VIX regained some of the ground that it gave up last week, closing ahead 1.92% to 1701 after closing at 16.69 on Friday. And I’m going to hold off on buying VIX Call Options until I see the trend in first quarter earnings reports.
The week ahead could well bring even less volatility and even more complacency as we move into what everyone expects to be a stellar earnings season–at least in comparison to the first quarter of 2020
With the financial markets closed tomorrow for Good Friday, traders and investors jumped in to buy today ahead of what is expected to be a jobs report tomorrow morning showing unemployment dropping to 6.0% (by the official measure) from 6.2% in February. The Standard & Poor’s 500 closed up 1.18%. The Dow Jones Industrial average ended 0.52% higher. The NASDAQ Composite finished higher by 1.76%. And the small cap Russell 2000 gained 1.50% on the day.
The one certainty in the stock market right now, I’d say, is volatility. Both to the upside and to the downside. So I think we should take what the market is giving us. Using these three moves in the short term.
You can judge the stock market’s mood pretty accurately today, Tuesday, March 30, from just a few price movements. Take a look at the performance of bank stocks, the small cap Russell 2000, the CBOE VIX “fear index,” and technology stocks to see where we’re likely to be headed for the rest of this week.
What looked like one of the rotation markets we’ve seen recently with selling of technology shares and buying of cyclicals and post-vaccine recovery stocks turned into a market-wide sell off by the close.
The market went into one of it’s typical square the positions move ahead of the weekend. Nobody wants to be too far out in front of anything that might happen this week. U.S. and Chinese trade talks could see an outbreak of pie throwing. The Federal Reserve could decide the while Treasury bonds will count against bank reserve requirements again on March 31 (as the central bank announced today) stocks starting with the letters B, G, and V won’t. Embattled New York governor Andrew Cuomo could announced that as of Monday New York City restaurants could open at 41.5% of capacity (up from 35%) as long as the 423 candidates running for New York City mayor swear to make it a campaign promise never to eat pizza with a knife and fork. But the market wasn’t about to let unfettered optimism break out either. And stocks that were down big yesterday only showed modest recoveries today. For example, Square (SQ) down 9.00% yesterday, regained 0.24% today. Twilio (TWLO) down 5.19%, picked up 1.07% today.
The market seems to be very complacent about the risk of heightened volatility over the next couple of months even as the actual track record on volatility shows that the odds of big short term moves are increasing. Which leads me to add the July 21 Call Options on the CBOE S&P 500 Volatility Index (VIX) to my Volatility Portfolio today, March 16. The VIX, which measures how much investors and traders are willing to pay to hedge risk in the S&P over the next month or so, has dropped below 20 today to 19.59 at 1.20 p.m. New York time.
The fifth YouTube video on why this very stretched market will hang in for another six months went up today.
Today, Wednesday December 30, is pretty much the reverse image of yesterday’s stock market action. Traders are having fun–and making money, I’d hope–in the day to day action but I don’t see a trend in this market that might extend into 2021. So, for example, the Standard & Poor’s 500 was up 0.13% today at the close in New York after falling 0.22% yesterday
The major indexes aren’t showing much of a move today even on the news that a new coronavirus stimulus/relief bill is like to pass today (along with the massive fiscal 2021 spending bill for the rest of the government.) I think a good part of that lack of reaction comes since the market has been assuming a stimulus bill would pass for days if not weeks and the actual bill is priced in to a great degree. That isn’t to say that there weren’t big moves to the upside of the sort that I expect could be the order of the day during the low volume trading days around the Christmas and New Year’s holidays. In many years bulls try to use the low trading volumes during these days to generate moves to the upside.
The number of Americans filing initial claims for unemployment in regular state unemployment programs climbed by 30,000 in the week ended November 21, the Labor Department reported today, November 25. For the week initial claims in state programs rose to a seasonally adjusted 778,000. Economists surveyed by Reuters had expected 730,000 new claims for the week. This is the second straight week for an increase in new claims for unemployment and adds to other data showing the U.S. economy is slowing under the impact of a new surge in coronavirus infections and a rising number of restrictions on economic activity as states attempt to slow the spread of the virus.