From the Trading Desk

More All-Time Highs; Small Caps Inch Lower

Just another day in this market where all-time highs keep coming and bears continue to get slammed. Earnings season is now upon us with bank earnings to kick-off the season. It appears that if we are going to get any down days they will be small and not clustered together. Utilities enjoyed another solid day, but finished off their highs after the Fed minutes indicated it was all but certain the central bank would raise rates in December. Real Estate enjoyed gains and only closed off slightly its high for the session. The VIX closed below a 10 handle for another day as investors simply do not see any volatility over the next 30 days. Steady as she goes. We have our stops in place and we continue to see new longs. Until this trend breaks we’ll remain steadfast in our approach.

The lack of volatility has some a bit uneasy. Sure, the VIX is low and has remained low for quite some time. However, looking at SPY’s average true range we see a new year low. IWM is near its yearly low as well as DIA. The QQQs is not, but its trend appears like it too will head towards its yearly low. Permabears will be quick to point out this will ultimately lead to something more sinister than the 2008 crisis. We have no clue what a low volatility environment will lead to. It does limit our ability to make monster gains like we have seen prior to 2008. High volatility allows for stocks to move much greater than they move today. We can only trade what is in front of us and not what we want. No matter what type of market we have we will adapt and make gains. Any other choice would ultimately lead to our demise.

Earnings season is not expected to be a good one. Expectations point towards a decrease in year-over-year earnings growth. Not something you want to see when the market is at all-time highs and earnings are the mother’s milk of stock prices. Couple negative earnings growth with rising rates will apply pressure to already near record high valuations. If a correction does happen we are prepared to adjust to it. We are not going to anticipate one happening, but are prepared with our stops in place.

We hope you are having a great start to the week and hope Thursday treats you well!

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