From the Trading Desk

Friday Morning Musings: Volatility Ticks Higher

Thursday’s selling was dramatic and hard hitting. The late day rally took the sting out of the selling, but damage had been done. Volatility picked up a bit, but nothing in terms of panic. We have yet to experience in a while a true correction and where the VIX gets into the high 20s or low 30s. When was the last time the SPY corrected 10%? It has been a long time. What our focus is now is continuing to look at our stocks and our process identifying and executing our signals. Keep it simple. Futures at this point in the morning (7amEDT) are pointing to a lower open. Our stops are set and if yesterday’s selling turns into anything more we will have our downside protected. We are not going to guess, predict which way the market will head. Guessing is not something we are good at. Stick with the trend.

Sentiment continues to be dominated by those who are neutral in the AAII Investor Sentiment Survey. More than 41% of the respondents were Neutral on the market over the next 6 months. Bulls were at 35% while bears were at 24%. It should not come as a surprise we have had so little bears and so many neutral participants. This market continues to be the most hated rally of all time. NAAIM Active Manager exposure index jumped back over 90% this week prior to Thursday’s session. Appears Active Managers still want to be exposed to the long side of this market. For the fourth straight week, there have not been any bearish bets within NAAIM Members’ portfolios. Is that so hard to believe? A case could be made with so few bears a correction is right around the corner. Yes, we may very well have a correction during the weakest seasonal period for the market. We simply will let price dictate our actions and not our opinion.

GOOGL had another tough session yesterday as the stock continues to trade underneath its 50-day moving average. It did manage to close above its mid-point yesterday as the only positive sign from the session. Big time sell volume has plagued the stock and it is off our radar in terms of a long position. TSLA could rally back to its 50-day, but has failed. Volume ticked up and while it is heavily shorted the stock potentially could be along with GOOGL a short. We are having too much success on the long side of the market to really be bothered by shorts, but these two giants are struggling and it is noticeable. Why you may ask? We do not care. Their price action is all we need to know.

Earnings have been solid and better than expected. The bar was low, but still it is nice to see solid earnings. August is a seasonally weak period along with September and October. Anyone who does a little due diligence will know this information. Tread carefully and make sure your position sizes are on point as well as your exits.

Have a great weekend!

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