At the start of 2018, we saw the markets press higher and we saw Volatility remain relatively quiet. This past week, however, we are starting to see the Volatility pick up in the markets. The VIX, RVX, and VNX have all shown strength this week compared to previously. Some traders are scratching their heads. They share the mindset that Volatility charts are inverted with how their counterpart Index trades. Their train of thought rests on the following Tall Tale:
“If SPX trades higher then VIX will remain low, and if SPX trades lower then the VIX will move higher.”
THIS IS FALSE! Sure, most of the time this can be seen as the case, which is why the myth exists, but remember these charts measure Volatility. Volatility can also move higher in line with the market if there are a bulk of traders scrambling to Buy. One of the reasons a lot of traders might be looking to Buy into the market is because of Earnings Season. Earnings Season can certainly increase the volatility with traders scrambling to make some quick plays on announcements. If traders are optimistic about reports and the trend continues, then it is not surprising to see the market move higher inline with Volatility.
John — The melt up is upon us. The only question that matters is, “How long does this reverse crash last?” The truth is nobody knows and anyone who says they do is a liar. Or at the very least misinformed. It’s tempting here to overthink what is happening – I’m certainly guilty of that – but the bottom line is price is price and thou shalt not fight price. Is it ok to throw on a few VIX hedges? Absolutely. Is it ok to make statements like, “The global debt drag will hit this market soon so I am shorting everything.” No, that is like saying, “I will show you how smart I am by sticking this metal knife into this electric toaster.” Be one with the river and be ready to change course as the flow of water churns by.
Danielle — This week has been a little bit of a whirlwind for me, as we saw more volatility on Wednesday and Thursday than we have seen all year. Granted, the pullbacks were very small but it has been easy to get spoiled with the market going straight up all of 2018. Where do we go from here? Right now I’m watching a 78-minute squeeze fire long in the S&Ps, and the markets are making yet another all-time high. It’s easy to feel like it can correct at any time – and it can, but this ride up has been amazing. So far, I don’t see any sell signals, and this earnings season has been incredibly bullish and positive. I had solid runs trading stocks in both the financial sectors and industrials prior to earnings, and grabbed a few for after earnings runs as well. I still hold long positions in MA, BIDU, BA, AKAM and FSLR for their respective earnings runs, and that is primarily where I’m focused. Ideally, the market will continue higher as many big names begin reporting earnings next week. Should their reports come out positive, I suspect that will take the market to yet another leg higher. After earnings season is over, I could see us getting a breather in these markets. At that point, I will look to be closer to flat and ready for anything.
Jared — For the first time in a few weeks, we’re seeing the crypto market showing signs of recovery. Bitcoin has been moving sideways for the last few days, but has cleared the short-term downtrend it’s been in. This all comes on the heels of Korea releasing official regulations for the crypto market which in my opinion was one of the main reasons for the recent stagnation. Remember, markets HATE uncertainty! This week I’ve spent most of my focus on XLM (Stellar Lumens) which is up over 35% on the week. With Squeezes coiled on both the Daily and 12 hour chart looking to fire long, I’m expecting higher prices going into next week.
Bruce — We are in a vertical market that just won’t quit going higher. We all know this is driven by tax reform and the global recovery, but the valuations will be driven by earnings. We are just beginning earnings season so we will get a lot more insight in the next several weeks. Earnings can be hit or miss and I totally expect good earnings, but also I expect that we start to see more volatility than we have had the last several weeks.
Raghee — I am going to carry long gold, silver, euro, pound, Canadian dollar, S&P, and Dow positions into the weekend. There wasn’t a lot of volatility from the meetings in Davos other than some U.S. dollar strength that I was inevitably sold into. NAFTA is back in the forefront and this should continue to help natty gas, the Canadian dollar, and peso. The daily price movement range strategy that I use in accelerated trends continues to deliver and I will focus on this going into next week.
Henry — What an active session. Friday’s can be like that. You’ve heard the saying “don’t lose your ass on a Friday” and I’ve always liked it. However, what I think it’s really trying to say is markets can have big moves on Friday’s, try not to be on the wrong side. While markets can move on any day, you tend to have more economic reports due out on Fridays that can have market moving effects. For example, today with the GDP – I suppose you can pin the move on that if you like. More to the point, markets can really move on a Friday and making sure you’re in the best positions for that is what it’s all about. We’ve covered dozens of names this week but AMZN BABA CAT COST FLIR MNST and PYPL have been some of the best and these are really helping make up for THO and WGO that I decided to be a little stubborn with. RHT – new lifetime highs as I type. It’s a market where if you’re trying to make sense of it, you’re going to miss the forest for the trees. Try to make as much as you can while the trend is there, while the moves are happening, and then if and when we pullback you’ll have done well enough that you continue to generate a profitable equity curve.
David — The S&P 500 uptrend continues with no signs that it is at a longer-term top. Nevertheless, we could start to see some choppier upside. Solidly below the Voodoo Snowline near 2830 would be the first sign that a larger pullback was in play. If so, I would look to the 2775-2800 area for support and that is where I would look to re-establish additional long positions. Only solidly below 2775 would I have any questions about the broader uptrend. Otherwise, I’ll continue to enjoy the bull stampede.
Trade of the Week Update
John Carter says:
Our THO trade this week kicked it out of the park. Not only was it a winning trade, but we were able to lock in those profits in the same day at our target level. Time to lock in those profits, bring back the capital, and look for another trade to repeat.
See the original setup HERE
Expert: John Carter
Setup: Setup on THO
Update from John: THO hit our target at the 1272 extension the same day as the over market internals deteriorated, so we closed it out at that target. The calls I bought at 11.50 we sold at 14.00.