Hey guys, I hope everyone's having a great week! Let's get right into it today. So the majors saw new all-time high's overnight (again), but appear to be experiencing some weakness as we approach the afternoon session. At the moment, SPY is trading comfortably above the megpahone pattern (and longterm resistance trendline) on the monthly, for the first time in over 9 years. We'll soon find out whether or not this is an outside reversal candle. If it is, I'll be praying for the bulls, because the correction will be epic. But, if it's not, and we continue to melt higher (on persistent dollar debasement), then we'll need to either work our position by hedgeing on the long side with minimal leverage and tight stops, or seek out value through a deep analysis of emerging markets. I would also consider holding off risk all together, and parking some cash in gold and crypto. Personally, crypto carries a bit to much beta for my palate, but I'm always comfortable holding gold or silver. First we would need confirmation that the top of the megaphone has been defeated, and is now acting as support on the monthly. Only then would we adjust our strategy.
When you take a look at the SPY on the 3 month timeframe, you'll notice the rsi is in a well defined descending channel, and we're sitting right at the top, where we could see a notable rejection. SPY is at, or nearing overbought levels across every timeframe, which could translate into lower returns in the near term. Mean while, the CAPE ratio is also at all-time high's, confirming limited returns over the next 10 years. Therefore, the justification for taking the risk would need to fall back on the shoulders of the "hope and optimism/recovery," narrative, with the real underlying mechanism driving prices higher, being dollar debasement (inflation).
Jobless claims are out tomorrow, so it's going to be very interesting to see how markets react, considering we rallied last week after a colossal miss, and an ugly print. We all know markets rally on bad news, good news, and no news. Trade accordingly.
Stay tuned for live updates throughout the day, and thanks for your time today guys! If you enjoyed our analysis, please hit the Like button and subscribe to our profile. The information and analysis shared in this post is not financial advice. Always conduct your own analysis and research. Cheers, Michael.
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Good look at the RSI channel on the 3 month timeframe...
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Put/Call ratio still looks extremely skewed...
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Vix catching some support here at the August low's, around 21.50...
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Looks like the bulls are about to lose the ascending channel support...
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Brief test of the 50 period MA on the hourly (367.59). Let's see if the bears try to break us below...
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Vix is looking strong today, back at a 22 handle. Good to see you old friend...
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10Y yield is working it's way through the 50 period MA on the weekly (.885). Looks ripe for a breakout...
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Bears testing the 50 period MA on the hourly again. Third time's a charm?
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Bears successfully captured the 50 period MA on the hourly, and now eyeing the 100 period at 363.65. Let's see if we see a retest of the 50 as resistance, before another leg lower...
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Vix at the high's of the day (22.50), as SPY see's it's lowest level since Dec 3rd...
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Put/Call ratio is getting awfully close to a break-out. This could get ugly very fast...
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Vix testing the 21 Day EMA (22.90)), losses are accelerating here as we approach power hour. Nasdaq is now down over 2%, with the SPY down aroun 1%, and the Dow down about .70%. Global markets are rolling over as well. Uh oh...
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Amid today's notable weakness, the dollar is catching a rare bid. We're now up around half a percent on the week...
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Maybe polarity principle still exists? SPY got a clear rejection off the 50 period MA on the hourly (367.59). Let's see if we see another leg lower before the close. The 100 day MA is calling...
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Hourly view of the Put/Call ratio. I do wonder what the financial media will say to explain the shift in sentiment we're about to see. Let's see what narrative they come up with this time...
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SPY back at the low's of the day. What do the bears have planned for the close? Hmm....
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Stuck in a tight range here with 5 minutes to the close. Where you at bears? Or do the bulls intend on recapturing the ascending trendline?
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Wow. Interesting day of trade. Massive sell program into the close. Bears showed up to take us back to a 366 handle, which is the lowest level since Dec 3rd. The majors were battered all day, with Vix spiking (for a change). Jobless claims out tomorrow so stay tuned as we witness an almost immediate shift in sentiment, as a breakout in the Put/Call ratio would imply.
Thanks for your time today guys, and have a great night! Cheers, Michael.
@HamHandsBill, You know what isn't correlating with the vix at the moment? my positions in vxx and uvxy I bought 3 days ago expecting this volatility- I've sat by taking losses the last 3 days in a perfect 1:1 with the vix and now that vix is spiking +9% those two are only up +4% lol
Hedge_Of_The_World
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@lexsteel11, I know exactly how you feel. Lol. I'm up a whopping 3% on the day.
HamHandsBill
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@lexsteel11, I suppose this means people are putting more short pressure on the derivatives, but not sure exactly. Maybe Hedge can clarify.
Hedge_Of_The_World
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@HamHandsBill, Yup, at the moment the Vol risk premium is elevated so the cost of holding implied (future) vol is high. The derivatives market is saying realized vol (historical price) is overpriced (as we're elevated). The term structure shows the elevation of implied vol quite well through January, so until Vix pops off a shift in sentiment, it's going to experience some pressure.
Mailbox27
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@lexsteel11 Yup same, been slowly bleeding and I’m still not even positive yet lol
Hedge_Of_The_World
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@isaacguenther02, Well said, it's been death by a thousand cuts for the bears this year.