I often wonder whether or not Albert Einstein would have been a good trader, given his IQ of 160 and his ability to correlate seemingly mundane observations and twist them into a mind bending theory related to the inner workings of the universe. Odds have it that he most likely would have laughed at the question and balked at wasting his intellect at a silly endeavor such as predicting future price action.
With the S&P 500 mostly treating water this week the big question in my mind was what the heck is driving the Russell to advance higher as if being juiced by a double dose of Martin Armstrong’s Tour de France special. Time to lift up the market’s skirt and dive in for a closer inspection.
The market seems to be going through a manic depressive phase right now which is increasingly affecting its ability to handicap risk. This was to be expected to some extent given the turbulent times we live in. But there’s a lot more to this and in essence it all boils down to the growing contrast between two clashing world views, with Wall Street apparently ready to go back to business as usual while Main Street finds itself mired in a political cold war that may extend far beyond January 20th and the inauguration of the 46th president of the United States.
Financials kicked off the final earnings season of 2020 and as a card carrying manic market megalomaniac it is incumbent on me to start parsing for potential IV squeeze victims. Much to the chagrin of some of you directional cowboys that is my favorite play but I would be remiss to not point out that implied volatility is not the only way to play earnings. But let’s take things from the top by looking at the overall market: