D&D Note (6.12.2020) ~ In A Highly Uncertain Market The Only Certainty Is Volatility ~
After yesterdays dramatic pullback many investors including D&D expected to see a gap down in overnight futures trading.
Instead we got a gap up on the opening bell with the S&P 500 at 3088.42 then fell down near 3000 to then rally back up to 3050 to then fall back down below 3000. The volatility leveled out a bit at the end of the session trading around the 200 day moving average.
This is a very uncertain market and this a dangerous one for the amateur retail investor. The only thing that is certain in this market is there will be a lot of volatility as we’ve seen just in todays wide range during cash trading.
The VIX which is known as the fear gauge tracks options buying in the market and is a measure of volatility. The higher the index goes up the more the movement both to the upside and downside. The VIX today remains elevated and implies high levels of volatility.
While we did see traders buy the dip post yesterdays decline the struggle between bulls and bears played out throughout the day.
Today was really a day to just step back and do nothing. Let the market find its direction and live to trade another day.
With Congress on recess the next two weeks there is going to be a vacuum where we are likely to see continued heightened volatility. This makes it dangerous to be long or short.
D&D recommends staying invested but also having cash on hand to take advantage of price discovery in your targeted equities. Currently we are around 40% invested but with a smaller more targeted amount of holdings to reduce our overall risk.
Create a watch list of stocks that you have done your research on such as balance sheet, cash flow, future earnings growth potential, and technical levels. Have price targets for when you want to both buy and sell each one of your individual stock holdings.
Don’t get suckered into FOMO trades that are baseless and pure speculation.
Case in point bankruptcy stocks. Bond holders get paid out first in a bankruptcy and it is ludicrous to buy stock in a company like Hertz. As you are simply betting on there being a bigger fool than you to buy the stock you eventually want to sell.
Don’t get stuck holding the bag.
Trust that professional traders are playing these amateur retail Robinhood investors right now. And it will end badly.
In this current market lacking virtually no fundamentals and guidance due to the pandemic it is crucial to track technical levels. As that is the main driver that algorithms are trading on.
Today the key level is the 200 day moving average and the S&P 500 has been trading above and below the 200 day MA of 3013. As moved into the final hour of trading we essentially got stuck at that level.
Closing above the 200 day MA would be bullish and closing below would be bearish. In the final 15 minutes of trading we broke above 3013 and rallied into the close. This helps confirm the recent market moves and creates a level of near term support opposed to resistance.
DOW up 1.90%
S&P 500 up 1.31% (3041.31)
NASDAQ up 1.01%
VIX down -12.11% to 35.85 while being around 40 for majority of day.
Oil up 0.17% to 36.40 a barrel.
Gold down -0.12% to $1737.70 while being in the green majority of day.
While many people focus on the number of deaths and mortality rates from Covid-19 the real issue is hospitalization rates and the availability of ICU beds.
The following states on a 7 day average are all seeing spikes in their hospitalization rates: Arkansas, Arizona, North Carolina, Oklahoma, Oregon, South Carolina, Texas, and Utah.
Scientists and infectious disease specialists warn that we are not even in a 2nd wave yet rather we haven’t even emerged from the 1st wave.
Global Virus cases: 7.57 million+
Global Virus deaths: 423,257+
US Virus cases: 2.03 million+
US Virus deaths: 114,195+
~ Dave James / Principal Trader and Market Strategist