The market’s been killing it lately. Let’s run through some stats so you can see just how impressive the action has been.
Coming into today:
Early on this morning, the tech-heavy Nasdaq was positive on strength in some key large cap tech names, namely Apple (AAPL) and Nvidia (NVDA), though Tesla (TSLA) was weak on a negative Wall Street Journal article.
However, it gave up its gains and finished off -0.2% at 6579.73. The SPX put in a similar return, finishing down -0.2% at 2544.73.
Biotech and small caps were shaky, which seems fair after the impressive runs they’ve had. They’re certainly showing relative weakness, but we can agree that it’s been earned.
Right now, it seems like traders are waiting for Wednesday’s Fed Minutes before making any big moves.
US Treasury yields have been rising since early September as the Fed has grown more hawkish.
On the flip side of the yield/US dollar strength, gold pulled back quite a bit before reversing higher the past 2 days. It will be interesting to see if the gold bulls are successfully sniffing out a skittish Fed on Wednesday.
Gold mining stocks (GDX) have actually been fairly strong the past few days and turned up before the metal itself. So I’m curious to whether those buyers caught the turn early.
Meanwhile, the VIX remains in what looks like a monumental collapse.
This morning, it hit an intraday low of 9.88, marking the 16th straight day with a sub-10 VIX print.
The VIX has also closed below 10 in 11 of the last 13 days.
So you understand how remarkable that is, the VIX has closed under 10 just 29 times since October 2014, when the CBOE changed the VIX calculation methodology.
11 of those 19 times have been in the last 13 days.
I’ve been reporting a lot of these statistics in the past couple of weeks, and the song remains the same: traders are acting like volatility is a thing of the past.
Since we’ve had several multi-year declines in the VIX throughout its history, it’s very hard to tell whether the volatility shorts are reaching too far.
The bears have been making snarky comments about the “short volatility” trade, implying that those in it are suckers.
But that crowded trade is still working and those suckers are making money.
And where that trade stops, no one knows!
That said, I am considering making what I regard as a reckless trade: buying some incredibly out-of-the-money VIX calls that would generate an enormous profit if the VIX broke over 50 or higher.
Call me crazy, but I have a theory that because the VIX has been so depressed, it will overshoot to the upside on a major market event.
But overall, the market remains in good shape as the bears can’t put together a single meaningful down day. Maybe that will happen soon, but let’s not forget who’s in the driver’s seat.