From the Trading Desk

Gains Continue as Volatility Continues to Drop

More all-time highs for this market as we continue to see a lack of selling from stock holders. This market continues defy all the odds and continues to move higher. Sure, we are due for some sort of correction. However, this market has many other ideas like continuing to move higher. Volatility as measured by the VIX moved a bit higher, but its tracking ETFs moved lower. Shorts continue to pile on to the volatility index as market participants simply do not see any volatility out over the next 30 days. Put/Call data on ETFs continues to be high as people are buying some protection, but typically these numbers are seen at market lows not at all-time highs. All we can rely on is price and price alone. We have yet to see anything from this stand point other than very small price movements. We have our stops in place to protect against any sinister move lower. All we can do is manage what is in our control and follow the price action.

What is amazing is on the S&P 500 its average true range continues to be very low. In fact, a ratio of the 20-day ATR over the closing price of the S&P 500 shows we are at a multi-decade low. This ratio has never been this low since the 1950s when the S&P 500 began! Pretty impressive to say the least. Where does low volatility markets head? Typically, higher as we have seen here. There is no guessing when a big market correction is going to happen and now that we are emerging from a weak seasonality period it may be some time before we see any sort of correction. Of course, we cannot predict as to when we will have any correction. It is why we have stops on the books just in case we turn south. There is no way we are going to caught on the wrong side of the market. Especially, if it is a violent move south. Low volatility markets are not much fun and do not produce monster stocks, but it is all we got!

NFLX reported after the bell and the market certainly liked its earnings. The stock will likely gap into new all-time high territory at the open. It will be interesting to see how the stock reacts once it opens for trading. A strong move will certainly be a welcomed sign for stock market bulls as NFLX is a FANG stock. Keep an eye on it today if you don’t own this big stock.

All systems continue to be a go and there isn’t anything from this market we see as an immediate red flag. Have a great week of trading!

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