Update: Our call from this morning before the market opened was to buy a $430-$420 put spread at $0.75. Now with the markets fall this is trading at $2.26 so a tidy near trebling of your investment. Nice when they work out like that. VIX continues to surge, up 27% today! We have been consistent in calling this dip not a dip but a downtrend.
The stock market remains nervous, and Monday saw this play out with a mixed session for mainline indices while the Nasdaq (QQQ) underperformed. Yields have started to rise as bond investors once again face off with the Fed. The yield on the US 10-year has now risen above 1.5%, and as a result interest rate sensitive tech stocks suffered on Monday. The Nasdaq closed nearly 1% lower. The SPY stock ETF, meanwhile, closed 0.3% lower at $442.64.
The intraday 15-minute chart above shows the last few sessions being pretty rangebound as investors search for direction. Early last week brought a heavy sell-off before the Fed stepped in to calm things, but the bounce has not really followed through and momentum is starting to wane.
Below we can see the blowout in the correlation between the Nasdaq (QQQ) and the US 10-year. Time for this to come back into line, so that means it is either yields or Nasdaq (QQQ) that goes lower.
SPY stock forecast
We have already pointed out how this dip is different from all others this year in that it was deeper than the previous dip. This is a classic downtrend then, a lower low than the previous one. No way around that. We also have a series of lower highs, again a classic downtrend. In order to break that cycle, the SPY needs to break $448.92. We remain with our call from yesterday before the open: "This late bounce to us looks like an opportunity to short. If you do, please use stops, always with the stops!"
SPY is still hovering around the flatline but failing to break the 9 and 21-day moving averages with any significance. Volume is also still going lower, so this bounce is not attracting buying volume. The VIX surged nearly 9% yesterday and is now back above 20. In general, this year stocks do not like the VIX above 20, and they definitely do not like when it spikes.
FXStreet View: Bearish, bullish above $448.92.
FXStreet Ideas: Buying a two-week $430 - $420 put spread will cost around $0.74 per contract. A put spread is buying the near $430 strike and selling the far $420 strike. At $420, volume is high in SPY, so it is a support zone.
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