Monday, June 12, 2017

Volatility Rising

These are just baby steps, but volatility is coming back.  I haven't seen that kind of out of the blue Nasdaq selloff since October 2007.  What I mean is that the Nasdaq was rising steadily, everything was fine, and without warning, it just dumped a load, not at the open, when it usually would happen, but during the middle of the trading day, after S&P had hit an all time high.  And on no news.

It's funny.  Nothing bad happened on Thursday after the Comey hearing.  And when the supposedly scary news about the UK vote leading to a hung Parliament (whatever that is) led to a small spike down in futures, it rallied all the way up till mid day US trading hours on Friday.  And then the dump on no news.  A perfect way to trap those who waited for the all clear sign to buy.  They were greeted with nasty little selloff to head into the weekend.

I don't want to make too much of one day, but we've been seeing a lot of volume go towards stocks that are going down and not that much volume go to stocks that are going up for the past few weeks.  And the ones that are going up got stopped in its tracks on Friday.  The selling pressure was building underneath the surface, as the indices showed that everything was fine.  Energy trades like a dog with fleas.  Similar to summer of 2015.  You know what happened soon after.

Fast Money on Friday was complacent, and viewed the Friday selloff as a one off move, nothing meaningful.  They seemed to want to buy the dip.  I disagree.

I've been cautious with putting on shorts but Friday was a clear signal that it is time to be less cautious to short.  I still want to wait for a couple of rally days before I short, but I won't be waiting for all time highs anymore.  A move to SPX 2435 would be enough to get me interested.

Bonds are not acting that strong considering the recent equity pullback.  It could be combination of 3/10/30 supply coming up, Fed meeting on Wednesday, and more bullish positioning by speculators.  I see limited upside and downside for bonds at the moment.  Looking out beyond the next few weeks, I would look for a continued move lower in yields as the economy is just not as strong as most traders believe.  We are late cycle in the economic expansion, and the Fed is putting the final nails in the coffin with their belated rate hikes, which should have started in 2013.

Think stocks rally from here into the FOMC meeting on Wednesday, but not playing the long side.

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