Be ready for anything in May

Stocks gaped DOWN the most ever in March. Stocks gaped UP the most ever in April. Let me say that again…these were the biggest moving equivalent (i.e. March & April returns vs. historic March & April returns) months for the S&P 500 in its history. Ever.

But wait, despite these two massive outsider months…the VIX, which is a measure of volatility, has declined of late. Doesn’t that imply that volatility is beginning to subside? In other words, things may be getting better. The chart below is that of the VIX. Note that, despite the decline – its above my “high volatility” horizontal line.

Despite a decline in the spot VIX, longer-dated volatility (e.g. 6m VIX futures) have actually been rising, not falling. This, according to Bank of America research, implies more downside in the nearterm. Slide below from BoA.

 

Despite the negative implications of the above, the stock market officially still resides in a long termed bull trend. Sure, the trendline has broken. But, the official rule of higher peaks/ troughs on the monthly line chart suggests that – beyond a consolidation pattern taking place- the big picture is less dire. True, the weekly line chart shows a lower low than that of the monthly chart. So you need to decide which is more significant in your analysis.

Bottom line

I’ll be posting a more comprehensive blog in a couple of days as I review the various factors from my Bear-o-meter compilation. Given the large swings we’ve seen over the last two months, it might make sense that we see a fairly noisy month in May. Will this be an opportunity for a trade? We shall see. Perhaps the Bear-o-meter reading will give us clues to that potential. Stay tuned…

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5 Comments

  • I think that nothing will cure the media propaganda better than Americans loading their guns which they are starting to do. To my listen, some American governors are taking orders from George Soros. Some virus free county’s are defying the state opening anyway. People are having enough of the totalitarian dictates. When it become clear that people have rejected the narrative they will have no choice to open things up. There is a deep occult religious agenda here whose goal is one world government – one world church but that is not a discussion for a TA blog. Next week there will be a lot of money coming into the market from the settlement of mortgage backed securities.

    Reply
  • If the experts say a huge recession almost as bad as the great depression is all but guaranteed then why be in the market at all right now? Shouldn’t we wait for these experts to give the all clear for buying sign?

    Reply
    • Markets do trade on hope, greed, fear. The economy is only part of that equation that drives the market.

      Reply
  • Just an observation is that the financials are not participating at all. Can you have a bull market w/o them. Also the xlk is above its 200 day and rising. Can it continue
    thanks

    Reply
    • Hi Joanne–yes, the tech sector has done well (it feeds into the stay at home and remote access/ communication needs at this time). So it is likely to be ok for the time being.
      The banks are in a world of hurt, and not likely to be profitable for some time. True, in the past they have been market leaders. And yes, logic suggests they will need to be again in a bull resurgence.

      Reply

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