5/8/20 MARKET CLOSE & WEEKEND Update - Consolidated Analysis

Updated: May 10

This is my singular thread that encompasses all areas of review for the day in the market.

QUICK SUMMARY:


'Equity Nirvana' regime:


  • Volatility blow out that the bulls where looking to accomplish came to fruition on Friday w/ VIX -11.01% and VXX -7.79%

  • UUP down heavily early and bounced later in the session finished -0.33%

  • TLT up Thursday by the exact amount down Friday. Round trip -1.38%

  • SPY finished +2.11% and was up even more AH

  • QQQ lagged the others, but still finished +1.66% and higher AH

  • IWM was the big gainer finished +4.11% looking to take shot at next FVG

  • SOXX very strong up +3.36% and broke up thru resistance

  • FAANGs all green except for NFLX

  • HYG +1.27% on the day but still range bound

  • XLF +2.47% on the day and taking posture to rally more next week

  • XLV/XBI/XRT/XLRE/XME/XHB all parabolic and gunning for FVG fills or new ATHs


The market is very much in the Equity Nirvana regime at the moment. Many of the GEX for indexes tracked are net positive. VIX dropped below 30 (win for bulls) but still 10% over 25 (next line in the sand). Banks look set to rally next week to fill some upside FVGs (that have been left behind) which could bring more bullish posturing, Robinhood account growth, and fintwit chest thumping by the bulls.


There has been many twitter posts about people being heavily bearish and on the wrong side here and comparing this impulse up to the 2019 Q1 one when Mnuchin had the 'bank meeting' on Christmas Eve. Similar advance, yes, but this has been quite a bit more relentless than that and has now created even more parabolic setups in charts all over the place. Speaking of that, there are too many numerous parabolic advances across the board to even get to them all (which usually are relentless up moves that are ultra-painful when they break.) AAPL, GOOG, FB, XBI, XHB, QQQ, etc. are all looking to be in a parabolic price advance.


This is really my exact point with creating this blog. Volatility is alive and well - ON BOTH SIDES. We just keep going from Equity Nirvana (stock buybacks, margin long dip buyers, volatility targeting strategies which leads to suppressed VIX which leads to positive GEX which leads to parabolic relentless buy side only auctions (with the caveat that all this is spurred by overnight gaps in futures spilling into the RTH sessions that leaves tons of FVGs on the way up).


We then get to some major point of inflection and then 'something happens'.


Price breaks down hard and hot and the Doom Loop is started (rapid price drop trapping large quantities of the dip buyers turns them into net sellers plus the volatility targeting strategies are blown instantly forcing mass VIX short covering which ignites VIX which flips CTAs which turns GEX negative and exacerbates VIX and creates indiscriminate selling).


Welcome to the markets thanks to the Federal Reserve since 2018 (wayyy more volatile both ways since the XIV implosion). Having said that, this is the market that we are trading and investing into. If you have been short, it has made sense, but the parabolic effect is in place at the moment, so it has made shorting feel like insanity. If you are long, you are arguably irresponsible as you are investing money into the market at a higher premium (P/E metrics) than even at 3400 in March considering the underlying deterioration in forward guidance into 2021. Even though, the irresponsible long trade has been the play for about 6 weeks now. Where does that leave us when we have all the FAANGs either bullish MSL or neutral MSL and QQQ and SOXX are neutral MSL too after this week?


I will not discuss macro here as that would just get so carried away. You do have one of the most rapid advancements in stocks ever last 6 weeks, which makes sense with the amount of liquidity that has been thrown into the market by the FED since late March. Bulls applauding the Fed and Bears going full Ron Paul on them now. Who is right? Both more than likely. Fed did what they had to do to feed the beast they created, but I think that now we are sitting firmly in the greatest game of chicken yet between the Equity Nirvana and the Doom Loop regimes which is fucking ultra-dangerous. The FED threw the entire house at the market and the system, not just the kitchen sink. It is apparent. But VIX is still at 28. The government is saying 15-20% of US is unemployed and shadow figures showing 30%+ already. Within 30 days those figures should be 25-30% unemployed from gov stats and 40-50% unemployed in shadow stats (arguably more accurate). This is not statistic without consequence.


Can just more and more money be applied to the system - sure it can. Will it stop the defaults and business closures? No. Will they have any impact on the market? Not sure. Does it matter? I don't think it does personally. What I think matters is that the Equity Nirvana vs. Doom Loop game of chicken is now down to a razors edge. If the Doom Loop gets hold here again, be very cautious as the Fed has played their hand and 'played to win' as Jerome stated. He has the Equity Nirvana in full effect right now, but if something shifts that - he won't be able to stop it more than likely this time.


Market levels? The QQQ is so unequal weighted it is hard to use that as a gauge of anything except FOMO. Same for SOXX. The SPY equal weight is best, but paints to bleak a picture. The real picture for me is the SPY and the VIX. The SPY has been static with an MSL at 312 for us for a while. We have stated that since starting the blog. VIX is bullish over 25 and neutral until 17.36. All of the put/call open interest is below 310 and all the executed SPY put/call action in all duration is sub 305. This brings merit to the natural MSL that our systems generate as the major market level.


I suspect that market action starts higher this week and can get that 300 number easily if it wants it. Can even get to 306 as the parabola sets in. Can it take 312? That is a totally different story. If it does, great, and we were all quite wrong about the COVID-19 epidemic and the gov totally botched this whole thing plus the liquidity will have solved many of the discounting for the defaults (that will be less than projected). If it does not take 312 and VIX does not get below 17.36 then the Doom Loop restarting as we get more stretched parabolically becomes even more probabilistic.


I do not give trade signals with this blog, that has not and is not my intention. But I don't mind to disclose that I am now starting to get non-leveraged short from up here and will layer leverage as we/if we approach 300-310 test in SPY and a sub 25 VIX (if we see it). The reason? Just a good risk/reward setup. I find it interesting that the legend 50 cent showed up yesterday in the VIX marketplace buying $0.50 calls on the VIX in his trademark style. He is track record is quite impressive at nailing VIX turns and profiting enormously. He is genuinely a little early so that he can build massive positions over a short enough period and not all at once. Looking at XLF and some other laggards that could run early in the week, you could see IWM test higher along with most everything else but tech is starting to run against math now...so it may lead by being weakest. Not sure. But the setup is there for a duke out between these two regimes and to see which one will win. Since we are at the top end of the equity trend, our positioning will be short from the watermarks above.


But I expect market strength again next week to bring us to the razors edge for the Equity Nirvana vs. Doom Loop regime once again. Triggers? Not sure and who cares. But something will have to give (either way) around the 300 SPY and 20-25 VIX level.

SECTORS:

Sector Takeways: All green. Bonds not buying it though.

VOLATILITY:


VIX: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: N/A

Block Volume: N/A


VXX: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Negative

Block Volume: Neutral

GEX: Negative


VIX/VXX Summary: Throttle on full for volatility targeting strategies now and they will probably press those strategies in the coming week. Could we get tests of 25 VIX and 25-30 VXX? Yeah sure and fairly probable. GEX quite negative for VXX now but momentum is lower end of the range and has been getting hit driving it lower and lower so starting to get compressed. This usually leads to range expansion once it turns so keep that in mind. Money flow and velocity will lead a price change and we are still not seeing that quite yet, so this plays into the fact that I expect to see vol targeting early in the week at the minimum as they will smell blood now.

INTERNALS


TRIN:

Takeaway: Mostly bullish across the board. Piling into the PM session specifically.


ADVANCERS/DECLINERS:

Takeaway: Strong advancing on the day.


NYSE ADVANCERS/DECLINERS:

Takeaway: Strong gapping candle and momentum trying to turn up. This should gun for the top gap early next week for the MSL resistance.


CUMULATIVE VOLUME:

Takeaway: Cumulative volume was pretty strong and momentum trying to turn back up. Should take a stab at the higher resistances early next week.


ABSOLUTE BREADTH:

Takeaway: MONITOR. Closed almost flat for second day in a row after being way down at the open. This also has a momentum x-over back to bullish. This is an outlier right now. If this breaks the wedge, then we will see a potential head fake in markets at these extended by side levels and volatility will surge.


MCCLELLAN OSCILLATOR:

Takeaway: Bullish again fully with plenty of momentum. This should lead to price strength early in the week and get back into the sell/embedded levels once again. This is total chasing behavior for this not to fluctuate between buy and sell levels in the market. That is more natural for even this manic index.


INTERNALS Summary: Bullish early in the week for sure. Watch for the resistance levels above and also for the AB readings early in the week. Those will be the tells imo.

INDEXES:


SPY: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Positive

Put/Call Ratio: Neutral/Bearish


SPY Summary: Sell side blocks are persistent now daily. GEX is positive. Momentum turned back positive (but in the upper end of the range). Money Flow and Velocity are dropping every day now along with sell side blocks increasing. That is negative into this strength. Everything makes the case that the 300-310 level will be the test of this market and we should see that this week.

QQQ: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Positive

Put/Call Ratio: Neutral (spike last week was obsolete)


QQQ Summary: The QQQ is just following the FAANGMs at this point and they are all parabolic so this should feasibly fill the FVG that was left behind as it is a stone's throw away at this point. Even new ATHs are not unreasonable for this with the market weighting and concentration of dollars flowing in. Same token though, if this index falters, it will take everything down with it by default of that same weighting.

SOXX: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Negative


SOXX Summary: This broke through the resistance on Friday and can either fill the mini-FVG left behind a week or so ago or it can fill the larger one above denoted by the purple line on the chart. Not sure which one so assume both get filled on momentum. Having said that, lots of selling underneath this is persistent everyday. Take that for what its worth.

DIA: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Bullish

Internals: Negative

Block Volume: Negative

GEX: Positive

Put/Call Ratio: Neutral


DIA Summary: Dow Jones looks to want to test the upper resistances again. Would not be surprised by that early in the week. Whatever price strength is seen, unless the Money Flow and Velocity pick up followed by a diminishing of selling underneath in size that is persistent right now, then this will struggle with the upside resistances again.

IWM: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Negative

Put/Call Ratio: Neutral/Bearish


IWM Summary: Looking upwards to the blue trend line and ultimately the MSL but not sure what is tested and what isn't. Completely a FOMO trade at this point, but it is getting bent to the upside hence the MSL being in play. Having said that, Block Volume is negative and been that way consistently, the internals are dropping hard toward the zero line, and the GEX is still negative even though it is in the upper price ranges. This may be the best short if it gets really into the nose bleeds as it has thin to no leadership counter to QQQ.

BANKS & HIGH YIELD CREDIT:


XLF: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Bullish

Internals: Negative

Block Volume: Neutral

GEX: Negative


XLF Summary: Banks are still a fade until they aren't but they left behind too many FVGs last week/two. Those will probably be filled early this week and it could range up to 23.74/24.00 level easily. I will fade it there if it gets there but have to see how it shakes out early in the week and if strength expected comes through.

HYG: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Neutral

Internals: Negative

Block Volume: Negative

GEX: HEAVY Negative

HYG Summary: Nothing positive now for HYG. GEX negative, internals negative now (which is new), block volume is at zero and dropping, momentum is neutral. Price is range bound (which is a win I guess as it promotes stability?)...but what happens next? I could see price oscillating around here up to the box level for the next period until the next volatility regime resurfaces (or doesn't). Think this has no direction for now but meandering.

TREASURIES, $USD, and PRECIOUS METALS


TLT: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Negative

Block Volume: Negative

GEX: Positive

TLT Summary: TLT retraced the entire move from Thursday on Friday. Still with lots of support all the way to 158. Looking for that local bottom to be shaping up somewhere in there. Should 158 go, that would probably coincide with 312 level in SPY getting breached to the upside and a more 'risk-on' environment setting in.

UUP: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Bullish

Block Volume: Heavy Positive

GEX: Positive

UUP Summary: Early weakness was bought, but lots of headwinds with the strength in everything across the board. Still with a major breakout setup in play now, but may depend on whether or not there is a genuine risk-on paradigm shift taking place. We will have to see how this unfolds next week.

GLD: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bearish

Internals: Positive

Block Volume: Negative

GEX: Positive

GLD Summary: Gold weak on Friday and retesting the red support line again. Have to watch this early in the week. No edge here from me on this. Its on the edge of the GEX structure here, so you could see enhanced weakness if this level gives way but it has been acting like support for couple weeks. We will have to see what happens.

SLV: Chart with Detailed Levels

Market Structure: Bearish

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Positive

SLV Summary: Silver trying to make a run for 15.54 level maybe? Too early to tell but has the setup to do so. What is odd is that this is happening while you are seeing relative weakness in GDX and GLD. Is silver front running even more strength in PMs or is this a flash in the pan before another market structure failure? I am totally with a no edge here and just watching this as there is tons of upside if this breaks 15.54 and tons of downside if it doesn't. Not a trade-able moment from our side.

GDX: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Neutral

Internals: Positive

Block Volume: Negative

GEX: Positive

GDX Summary: Looking weak and 35 level was a long term FVG resistance going back to 2013. I don't expect it to be breached on this attempt. Having said that, if it does breach it, it will head directly for the 40 level. I will be introducing new charts in week or two and be able to highlight that data from 2013 visually so you can see the volume profiles that are driving that 35 and subsequent 40 price levels.

FB: Chart with Detailed Levels

Market Structure: Neutral

Momentum: Bullish

Internals: Positive

Block Volume: Neutral

GEX: Positive

FB Summary: Straight parabola action. This has filled all the FVGs and looks very terminating. This is maxed out on all readings but look at the blocks and you will see people starting to fade this. MSL is neutral now so sitting and watching how this shakes out.

AAPL: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Positive

AAPL Summary: Seems to want to go from trend line to trend line low to high in a couple months. Staggering FOMO here on this one and same scenario playing out as FB in that you see the move up being faded by blocks underneath. Since MSL is now neutral, sitting and watching this for more clues.

AMZN: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Positive

AMZN Summary: Probably takes a shot at higher high or at least fill the FVG that was left behind on last week's drop. But look at those sell side blocks starting to really get LARGE...wow. Fading this is an understatement. Those could portend some bag holding coming up.

NFLX: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Negative

GEX: Positive

NFLX Summary: Same as the previous in that the momentum is up but selling underneath in block size. Everything else is positive and price at the upper end of the range, so sitting and watching for more clues.

GOOG: Chart with Detailed Levels

Market Structure: Bullish

Momentum: Bullish

Internals: Positive

Block Volume: Positive

GEX: Positive

GOOG Summary: Parabolic like FB with still more upside, so this is probably getting bought early in the week unless something major happens. It wants to fill that FVG up at the purple line. But having said all that, the parabola on this is absurd so once it breaks, it could be a hard drop for late coming small lot buyers that chase it/have been chasing it recently. We will see how it shakes out.

The End.


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