iwm – Stoic Trader

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:

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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.

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.

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.

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.

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.

The sell-off is not completed

Investors must now price in additional tariffs on China, and further conflict going forward with regards to China.

We won’t have a trade deal anytime soon. It’ll take a while for the repricing of assets to trickle through the market, just like it did back in May.

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

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.

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.

However, a quick resolution on China trade would negate this scenario.

Reviewing the Past Week Predictions

On July 31, after market close, I predicted:

VIX will peak around 23-25.

SPY pulls back to $292 by the end of this week.

IWM pulls back to $151.

My VIX prediction was way off, with VIX finishing at 17.6 today.

My SPY and IWM predictions were pretty damn good though. SPY finished at $292.97 and IWM at $152.48.

More predictions will come…

FOMC Meetings and Market Behavior

Last December I learned a valuable lesson: be cautious around Fed meetings.

I remember seeing the market sell off. VIX jumped through the roof.

To me it was obvious that the Fed was going to hike rates. They said they would hike rates, markets were sold off, but not so oversold where the Fed was concerned about backing off the rate hike plan.

Then the market sold off. I thought it was crazy. I thought people had already priced in these Fed expectations. I was wrong.

When a similar situation took place in March, I realized that Fed days bring volatility. Why? Investors are obsessed with interest rates and Fed policies. The world’s central banks, led by the Fed, have babied along this 10 year bull market all along the way.

Zero-interest rate policies, quantitative easing, and easy monetary policies have all propped up this market in an effort to combat deflation.

Investors need the Fed to keep the market afloat. The game has changed, and this is what investors rely on.

Fed meetings solidify estimates that markets have priced in, or they rock the boat even more when estimates were not priced in. Then investors move on to speculation about the next Fed meeting. And thus the cycle continues.

Nailed it. Again.

This morning I wrote:

SPY is up 0.33% this morning, as of 9:54 am.

IWM is also up 0.50% this morning.

VIX is down 6.64% following its pop yesterday.

I don’t expect this to last. I believe this is a short squeeze that will reverse by 11-12 am today. At that point, the sell off will continue.

Consultation of the charts shows:

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The selloff on SPY and IWM took place around 1:30 pm today, when Trump announced more tariffs on Chinese goods.

Damn I’m good. Or maybe I’m just lucky. But I was expecting a volatility event for a couple of weeks now, and it finally came.