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Month: August 2019

This is what’s going to happen in the market this week

In this article, I’m going to review my past predictions and make some new ones.

On August 3rd, I wrote a post laying out what I thought would happen. Shall we take a look?

As I mentioned earlier, I expect IWM to pullback 5-7% since it broke the $153.50 support level earlier today.

IWM finished this week down 1.28%. I didn’t put a date on the 5-7% pullback, but this is something I expect to play out within the next two weeks.

This would give you a range of $144.95 all the way down to $141.90 coming into play.

At a minimum, I do believe that $145 will be retested. This is the level that IWM dropped to in May following the added tariff announcements. See IWM chart below:

iwm81019

SPY is a little trickier for me. It tends to whipsaw in price when volatility picks up, possibly due to algorithmic and HF trading. I think we see SPY revisit $285 range before the end of next week (Aug 9 expiry), but it’ll be a rocky ride.

SPY surprised me this week with the massive selloff that took place on Monday. I thought it would be a rockier ride to get down to $285, but we actually touched as low as $281.72 on Monday!

I was correct about the whipsaw though! Tuesday and Wednesday started off as days that looked like they were ripe for shorting, but the market ripped back almost 2% higher come Thursday, and 4% higher off Wednesday’s lows.

I believe that this upcoming week (August 12-19) will see SPY dropping as low as $279, retesting those levels reached around May 13 this year, in the midst of the May selloff that took place.

I’m also watching the $272 price level to get rested in the next two weeks. See SPY chart below:

I think VIX will also whipsaw next week, seeing a range with a low 14.7 and all the way up to 23.5. That’s just my guess.

This week, VIX saw a high of 24.8 and a low of 16.8. Not too bad of a prediction!

Next week I’m looking for a high of 26 on VIX and a low of 17. Keep in mind, when VIX is this high and with the current news, a much higher VIX is always possible.

I mentioned on my Twitter that I picked up some VXX call options and XLF put options to set up for whatever could happen next week.

These are a small part of my portfolio. I have positions both long and short in tickers or tickers derived from the ones mentioned above.

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I’m always learning

I like the put predictions out there for the purpose of learning.

I don’t want to be seen as some prophet, because I’m not. I’m wrong a lot of the time.

My goal is to put predictions out there so that I’m accountable for them. One effective way to find out your biases is by putting things out there to be scrutinized.

Your scrutiny, insights, or questions are encouraged because I know they will help me (and probably you as well).

Cheers,

Court

Reviewing VIX from August 9, 2019

SPY was down 0.69% to $291.60 on Friday, and VIX was up 6.27% to 18.

VIX bounced off the 17 support level that I outlined in this post here. Here’s what I said Thursday even, after market close:

VIX hit the support level around 17 that I had set out in my post yesterday as a level to watch for. I think this line will continue to act as support and VIX will bounce going into close tomorrow.

The VIX level of 17 was actually laid out by me on Thursday, which can be evidenced with my TradingView chart I posted that day.

(I’m not saying this to brag. I believe it’s important for me to document every prediction and recognize why I was right or wrong. It’s the only way I’m going to develop a better intuition about market behavior.)

As you can see above, VIX did bounce above the 17 support level I laid out after dipping just below it on Thursday. VIX bounced off the support level going into the closing minutes of Friday, setting up a situation where VIX could spike again this coming Monday.

Stocks have recovered too quickly

SPY was up almost 2% today, erasing all of this weeks losses generated on Monday. Not only did SPY close the gap, but at this point we are up 36 basis points from last Friday’s close.

After a decline of nearly 7% off of its high, SPY has gained 4.2%.

We have exceeded a 50% Fibonacci retracement, and are very close to a 61.8% retracement from the all-time highs set in late-July.

Overbought conditions were reached on the RSI indicator, using 30 minute candlesticks as seen below. Peak overbought conditions were seen today around 12:30 pm.

SPY was moving sideways for a few hours later in the day, but broke higher in the final hour of the day.

In the last two days alone, from it’s bottom at the open yesterday, SPY has gained over 4%.

In my opinion, Monday was sold off too quickly and this recovery this week has also happened too quickly.

VIX hit the support level around 17 that I had set out in my post yesterday as a level to watch for. I think this line will continue to act as support and VIX will bounce going into close tomorrow.

VIX didn’t really sell off much on the 6th which surprised me. Some say that big money was picking up volatility options at this time.

If so, VIX getting sold off would make sense to me if options traders were taking profits on their trades Monday and Tuesday. The reason I think it makes sense is because when those market makers buy the puts, they are also going to have to buy the underlying stock to remain delta neutral.

I think you see adjustments from market makers impacting the markets. I also believe that today was more of a short squeeze combined with unwinding of VIX call option/SPY put option positions which jerked the market around in these past couple of days.

As those positions are done unwinding, which I think will happen in the next day or two, I think it’s likely that the market will continue to selloff and VIX will spike once again.

The risk hasn’t changed in three days

We’re still in a trade war with China.

Tariffs are still slapped on China.

China still isn’t buying US agriculture.

The yield curve is still very much inverted.

Central banks are turning to easy money policies.

Risk isn’t off right now. Have a small position in volatility and protect yourself against the turmoil.

102% Gain on Disney (DIS) Put Debit Spread

See the details below. I entered this position on June 28th because I felt like Disney was overdone. It did run up for a bit, and I was able to add to this position on July 12th. This particular option gained 213%! So much for the “don’t add to losers” rule.

My only regret is that I didn’t buy more.

stock

I do hedge all of my trades, and you should be aware of that. Here’s what the full picture looks like for DIS:

stock2

I lost $37 on call options related to Disney, which were bought as a hedge. Net, I made $208 across all Disney positions, and returned 52.3% after all hedges were taken into account.

SPY and VIX – August 7, 2019

CHART TIME

I’m watching the $2900 support level on SPY in the coming days. We saw a strong rebound off the lows set on Monday. A move above $2900 would be bullish.

I expect SPY to bounce off $2900 as it will become resistance on the next leg down. What do you think?

spy8719chart

VIX showed a lower high on the current trading day. This is usually indicative of a reversal in the price action. I’m watching the 17 support level for VIX. If we break below that level, the next support level isn’t until 14.

I’m not sure if I’m overly influenced by the news lately, but I think there is still the possibility of VIX popping higher, 50% or more from it’s current levels to it’s highs. This would bring VIX up almost to 30.

I believe that the markets are vulnerable right now, and you should be careful trading out there!

vix8719chart

What’s going on in the stock market today? August 7th 2019 Edition

In the futures market, the S&P 500 was up 50 basis points overnight just before 6 am this morning.

As of this writing this the S&P 500 futures have tanked precipitously. At 8:10 a.m. the S&P 500 futures are down 45 basis points, almost a full 100 basis point swing from just two hours ago.

https://www.tradingview.com/x/p8mSqCAI/

What are bonds doing today?

Bond prices continue to rise today. The 10-year T-note Futures are up 50 basis points this morning driving expected yields down as central banks across the globe continue to implement easy money policies.

What is the Yuan doing today?

Yesterday, it appeared that China was letting their foot off the gas. However, their currency is devalued again today. After dropping slightly yesterday, the USD/Yuan exchange rate is up 34 basis points.

https://www.tradingview.com/x/tXuE6O4l/

The concern is if China doesn’t have control over the currency. As I mentioned the other day, if China loses control over their currency it could be very bad for global markets.

What should you watch for today?

Based off the futures behavior in the past two hours, and the volatility index spiking up 9% off of its morning lows from just a few hours ago, this could be an interesting day in the market with more selling to come.

I’m not sure what’s going on in the market at the moment but it seems like investors are dumping risk assets.

Money seems to be piling into bonds at the moment.

Also money is piling into commodities. Gold is up 1.62% from the prior day. gold continues to Rally in the face of easy monetary policies engaged by the central banks across the globe.

What’s going on globally?

According to a report from Bloomberg, global easing is picking up pace as New Zealand shocked the market with a bigger rate cut than expected.

New Zealand’s Central Bank reduced its cash rate by 50 basis points. New Zealand Reserve Bank Governor Adrian Orr didn’t rule out negative interest rates to help prop up inflation.

This cut by New Zealand mirrors what’s been going on in  Europe, Japan, and what will be coming in the United States in the near future.

Interest rates are getting cut. They’re going to get caught big. They’re going to go negative. This is going to have a significant impact on  the bonds in commodity markets especially.

Keep an eye on GOLD and TLT today to see what the market is pricing in. Check out the article I wrote about on game theory and the markets, and why you should pay attention to not only equities, buy bonds and commodities as well.