Stalled

The rambunctious rebound rally of 2020 appears to have stalled as profit taking and a rather sobering earnings season managed to pull the breaks on what thus far amounts to a 50% retracement. Are we just taking a breather or is this the end of the line for what thus far looks very much like a high volatility snapback within a more extended bearish cycle? Nobody has a crystal ball but I’ll do my best to provide you with as much market insights as I can muster.

ES 2900 seems to be the proverbial wall at this point, which is interesting as I didn’t see much in terms of technical evidence that would suggest a reversal right there. Plus the volume profile panel shown above suggested that we should have run all the way into ES 3000.

Until I looked at the long term panels that is. It appears that the 100-week SMA in combination with the weekly Net-Line Buy Level is currently serving as a wall that will need to be overcome in order to get us the coveted 3k mark.

FWIW – I don’t put much stock in the SMA on its own but perhaps in combination with the Net-Line we may be on to something. In case you wonder – the Net-Line was there before the reversal 😉

Realized volatility has slowly degraded over the last two weeks and then died and was interred yesterday at Arlington National Cemetery. Which is rather strange during earnings season and in particular THIS earnings season if you get my drift.

While volume and participation was clearly lacking market breadth on the SP100 bordered a ratio of 9:1. As you can see only 10 issues were declining with everything else being bought. Of course who’s doing the buying is another question.

The VIX was pretty flat over the past few sessions curling around the 40 mark – shown here are the VX futures which were first leading lower but then snapped back higher and are now in line with the VIX.

The VX product depth shows us a heavily declining curve in deep backwardation. The term refers to the fact that near term contracts trade at a decreasing premium in comparison to far term contracts. This of course is a bit of an academic concept with the VX as there is no physical delivery when it comes to the VIX that it tracks.

What it shows us clearly however is current risk perception – not reality mind you – over the remainder of this year going into 2021. Although there is a steep decline with a obligatory bump in October the low point of 25 should not be considered positive in anyone’s definition.

The IVTS also seems to be waiting instructions parked at the 1.05 mark. From a systemic trading perspective this means that anything that worked for us/you over the past decade most likely won’t be working right now and will continue to suck for the foreseeable future.

In less esoteric terms it means that your system’s entry, stop, and campaign management rules are ill designed to deal with the type of volatility that is now becoming our new daily reality. Don’t let the current quiet period fool you, there is more turbulence waiting at the horizon. The level of volatility that we have seen over the past two months doesn’t just disappear in a matter of weeks.

More market analysis below the fold for my intrepid subs:

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Before I run – here’s a quick update on my gold campaign. It looked like a dud there on Monday but then bounced back nicely. I have advanced my trail to break/even, which admittedly is a bit early but this market moves in surges and if this one does not extend higher then it’ll most likely is destined to die in its cradle.