If you thought the market’s reaction to the weekend news was positive, I’d also like to add an observation I’ve been witnessing.
There is a specific trend I’ve noticed over the last week. And all has to do with the market’s fear index, the VIX.
It rises during periods of uncertainty and market sell-offs. And declines during bull markets and slow moving-markets.
Take a look at the chart below:
VIX Hourly Chart
And since you’re well-versed in what I covered in class, you know exactly what that circle represents.
If you don’t, no worries.
I’ll review it here, and explain it to anyone who hasn’t gone through the class.
We’ll be looking at fresh charts on the VIX, TLT, and IWM…aka the big picture
The VIX measures the implied volatility of options on the S&P 500. Think of implied volatility as the demand for options. Demand tends to increase as markets fall and visa versa. So, what does this chart tell us?
VIX Hourly Chart
That circle tells us three critical pieces of information. First, the VIX closed at the dead lows of the week, and it didn’t just get there on the last day. The VIX spent the entire week in a slow bleed lower.
Second, we’re trading below the 200-period moving average on the hourly chart. That’s a crucial point as that typically acts as support. Yet, the VIX didn’t even bother holding there. It strutted past it like a jilted lover.
Third, the 13-period moving average continues to ride below the 30-period moving average. When you get a faster moving average holding below a slower one, it highlights an ongoing downtrend.
I want to let you in on a little secret.
We’ve got the exact same phenomenon happening in the VVIX, which measures option demand on the VIX.
VVIX Hourly Chart
Lower implied volatility on the VIX often means that stocks want to move higher. When both the VIX and VVIX echo the same story, it’s likely we’ll see a rally.
Last week’s rally started in part from the crude markets. That shouldn’t surprise most of us as the plunge in crude last month kicked off the second, steeper leg of the decline in equities.
Supposedly, Trump managed to bring the Russians and Saudis to the negotiating table. Both turned on the oil faucet, creating a glut of supply against declining global demand. However, Monday’s meeting has been postponed after some jawboning by both sides.
Nonetheless, we’ve seen one of the most historic dives in oil prices. We shouldn’t be surprised to see rallies that leave skid marks.
USO Hourly Chart
While we haven’t quite crested the 200-period moving average, we’ve got a 13-period crossing over the 30-period moving average. This ‘money-pattern’ tells me oil wants to at least hit the 200-period moving average. Plus, we’ve got a pretty bullish setup there as well.
Make no mistake…any short-term rally is meant to cause shorts a lot of pain. However, the bond market says we can’t get complacent.
Money continues to flow into treasuries, hoping to hide out from stocks. You can’t look at this chart and see anything but the bond bulls in the chart.
TLT Hourly Chart
Yes, it will be difficult for bonds to make new all-time highs. Heck, they’ve experienced their own record rallies. If we went much further, we’d see negative rates in the U.S. pretty soon.
Two areas continue to get butchered: small caps and financials. Most people aren’t aware, but the Russell 2000 small-cap index has a heavier weighting of financial companies than the S&P 500. It’s also more susceptible to economic risk as smaller companies have shallower balance sheets than the big guys.
When I look at the IWM hourly chart, I can’t help but wonder when it’ll fall apart.
IWM Hourly Chart
Not only does the chart have a bearish crossover, but it continues to far underperform the other major indexes. The SPY finished down 2.06% last week. That’s Warren Buffet compared to the IWM’s -7.05%.
From the all-time highs, the IWM is down 38.66% compared to the SPY at -26.8%. Small caps tend to lead the rest of the market which tells me the bears are far from done ripping things apart.
Not to worry. I’ve got another one coming up shortly, so while you’re trapped indoors, do yourself a favor and get a free education.
Hey there carnivores,
Markets all ended in the red on Friday, the day added to overall losses on the week.
Today we’re talking about how jobs are disappearing.
Jeff & Jason
The U.S. job market had a hell of a March, and not in a good way. The U.S. economy lost more jobs than it gained for the first time since 2010, and the 701k lost was the worst since the Great Recession in March of 2009.
Not surprisingly, the unemployment rate climbed to 4.4%, despite previously sitting at a 50 year low of 3.5%. That 4+% rate was the highest in the U.S. since 2017.
Both the job loss and unemployment rate surpassed analyst expectations. Many estimates put the payroll decline at just 100k, with a 3.9% unemployment rate. Can’t be disappointed in us now, can you, mom and dad?
It’s worth noting that the April jobs report could be even worse. That report, due to be released May 8th, will include the nearly 10M who have filed for unemployment since the beginning of the U.S.’ coronavirus lockdown.
Economists believe the job market will fall by another 20M jobs in April, beating the 800k drop experienced during the Great Depression.
At least a few hopeless romantics believe that while things might look bleak, the recovery could be faster than we expect. Despite the St. Louis Fed saying unemployment rates could reach upwards of 32%, exceeding Great Depression levels, the conditions are there for an accelerated turnaround.
Currently, we’re facing a demand-side recession. Compared with the recession of 2008 and those prior, Americans aren’t afraid to spend money, they just have nowhere to spend it.
These eternal optimists believe the economic recovery could be a nice, steep V-shape, versus a drawn-out recession. Take that, bears.
Shares of Chewy dropped on Friday, extending a four-day losing streak leading to a total 10% drop Monday. Bad dog…
Investors are blaming the company’s recent sales boom as a result of COVID-19. Wait, what? You see, the unprecedented spike is making it impossible to predict the online pet-product retailer’s future. Great growth comes with a great cost. Hiring new people and having existing staff work overtime is a Grade-A recipe for overspending.
The FTC officially sued Altria for violating antitrust laws when it took a $12.8B stake in Juul in 2018. The Feds are pointing to a non-compete agreement that would have the Marlboro owner remove its products from the market, citing “illegally restrained competition” as the basis for its case.
The Marlboro Man isn’t going down without a fight, however. Altria is defending its position that the investment doesn’t harm competition, but it sounds like it is going to have to prove itself in court. Remember the good old days when the biggest pulmonary issue we had to worry about was death by vaping?
Some people are letting this global pandemic alter their travel plans. Not David Solomon. The Goldman Sachs’ CEO managed to do something that’s never been done by the bank: buy two corporate jets.
One of the confirmed models is the “Rolls-Royce” of jets, the G650ER, which sells for around $50M. Tough to find an expense code for that one.
DJ D-Sol has found himself on the receiving end of some bad PR as of late. Just weeks before joining the mile high club, Solomon landed a 20% raise. And critics might have a point. $GS has lagged competitors for most of Solomon’s 18-month tenure. Corona be damned!
That’s the number of people who filed for jobless claims last week, shattering the prior week’s 3.3 million record.
Our jump on the week starts and ends with one word – jobs.
I’m going to shoot straight with you. You’ll see headlines numbers on television that will shock the general public.
But not you.
After today’s briefing you’ll know what to expect.
And when others panic, I expect you to be feasting…
Total Alpha plays with the big cats!
Because believe me, there are PLENTY of opportunities out there!
Allow me to show you what I see…
With a US population of 390 million people, a staggering 2.5% of citizens filed for unemployment insurance in two weeks, and that probably still doesn’t capture the total.
We’ll likely run right by 15 million jobs lost during the entirety of the Great Recession in a matter of weeks.
Chances are we’ll see unemployment around 10% or higher by April.
One of the Fed governors predicted over 30% unemployment when all is said and done.
These are real possibilities, but they’re transitory. It shouldn’t surprise anyone that a third of our workforce is furloughed or unemployed.
The most common scenario at the moment is a furlough.
That allows folks to collect unemployment while returning to their jobs if and when things open back up.
Realistically, you’ll see a lot of those folks go right back to being employed once the economy reopens.
Just over 11% of jobs in the U.S. work in leisure and hospitality. It’s extremely unlikely all of those jobs simply vanish.
There’s expected to be a backlog of orders across various industries and pent up demand from people stuck at home.
Certainly, things won’t go back to the way they were. We’ll see vast changes in employment across the world.
But to expect we’ll sit at some extraordinary unemployment rate of 30% or more is ludicrous.
That just won’t happen so get that out of your head.
These big numbers will make headlines, but they won’t help us navigate the markets.
What we need to know is when and where to expect the inflection points in stocks.
First things first. Every Thursday we’ll be getting two important numbers – jobless claims and continuing claims.
No one has any idea what the numbers will be week to week for now.
What we do know is that the market will move off these numbers.
You can already see that in this past week with the Thursday claims precipitating the rally that ensued shortly thereafter.
SPY 10-Minute Chart
Why on Earth would a 6.6 million headline number cause a market rally? It could be a buy the rumor, sell the news event or something else.
I can’t tell you for certain.
What I do know is that these will be the data points that spark market movements every week as they were during the Great Recession.
That’s why you need to keep track of volatility through the VIX coming into those data releases each week.
So what am I watching for?
First, signs of treatments or vaccines.
It’s what led me to my Bullseye Trade in Gilead last week that netted me a cool $11,600 in profits last week.
There’s a handful of biotech companies working this area to keep an eye on.
I’m also watching how the stay at home plays continue to trade. Amazon’s been a heck of a great story along with Netflix, Zoom Media, and Teledoc.
I recently broke down my Costco trade in a recap video
No, I didn’t show the ridiculous lines that I sat in just to buy toilet paper!
When you’re looking for stocks this week, think about the companies who are still humming along throughout the lockdown.
Grocery stores keep bustling along with telecommunications companies.
I’ll let you in on a little secret as well. At some point all these companies will get super cheap.
When that happens, I plan to pick up some of the biggest names out there before the funds start loading up.
Expected earnings dates listed in (…)
Stocks I want to bet against…
TLT (none), ZM (Mar 4), COST (Mar 5)
Stocks I want to buy…
MJ (none), UNG (none), XLE (none), WDAY (May 26), TWLO (May 3), OLED (May 7), V (Apr 22), IRBT (Apr 28), DPZ (May 20), GOOGL (May 4), CVNA (May 13), CMG (Apr 22), NFLX (April 21), AMZN (Apr 23), UBER (Jun 4), GDX (none), ROKU (May 13), MTCH (May 5), TDOC (May 5), ZS, AYX, RH, WORK, IWM
Monday, April 6th
Tuesday, April 7th
Wednesday, April 8th
Thursday, April 9th
Friday, April 10th