This morning stock futures were given news of a potential short-term debt ceiling deal from republicans and futures reacted quite positively. A poor jobless claims figure was released and while it showed more claims were put in the data was skewed due to a technical glitch from California. Despite a poor report the market continued to plow ahead as traders rushed back into the market in hopes of a deal. Volume day over day dropped, but was above average. Institutions weren’t giddy enough to buy stock hands over fist. Perhaps some fear still exists even with the VIX dropping more than 3 points on the day. A solid day for the market and while more volume would have been preferred we cannot complain too much.
The destruction of the VIX reminds us much like what happened on 12/31/2012 where we were in the last few hours of the fiscal cliff deal. The market reversed earlier loses and the VIX was slammed hard. Does it mean we’ll get a similar action this time around? If you polled the street we are pretty confident many would answer this market should get a large pop on the announcement of a debt deal. Someone will bend and a deal will get done. The question is how the market will handle such an event and if we are in an uptrend will it hold? You need solid rules and processes to handle the market in any given situation. Without sound rules you will be left standing paralyzed and will do damage to your capital. Stick with Big Wave Trading.
One interesting development over the last week was the move by bulls in the AAII Investment Sentiment survey. The number of bulls jumped over 40% to 41.33%. Even the debt ceiling debacle and government shutdown did not scare away many bulls. Bears stuck around the low 30s ending the week at 33.58%. If you had to guess one would have said bears would have been the clear winner in the survey. Just an observation from our point of view, but an interesting development we’ll keep a close eye on. NAAIM survey showed investment managers pairing back long positions, but overall remain long the market. Even with the VIX jumping like it had prior to today market participants never strayed from their bullish positions.
While there was extensive damage done to quite a few market leaders there are always new leaders if you know where to look. If we are going to continue to new highs we’ll need to get aboard those stocks ready to take off. Are you ready?
Make it a great weekend!
