Stocks jumped again on Dec. 7 as the VIX fell back to 21.9. This type of price action coupled with implied volatility moving lower suggested a short-covering rally from oversold conditions. The move lower in the VIX meant that traders were likely closing out put positions which led to market makers buying S&P 500 futures.
But I won’t expect the VIX to drop much more from these levels. The front-end of the term structure fell sharply, the rest of the VIX structure moved down less. Suggesting the market was still anticipating higher volatility in the future.
The volatility dump helped the S&P 500 to fill the gap at around the 4,695 area finally, we had spoken about in the past. The pattern Tuesday looked a lot like the pattern from Nov. 29 and a few patterns we saw back in September. Most of the time, we have seen the S&P 500 give back the gains and fill the gap at lower levels, which would be around 4,600, with this type of pattern.
NASDAQ
I have been working on something new the last few “weeks,” and I thought I’d try it out as I write. It has worked reasonably well in the Asian markets, so I will give it a shot. The box in the QQQs suggested the ETF will fall back to and fill the gap at $386. If it works, we will see.
S&P EW
The gap in the Invesco S&P 500® Equal Weight ETF (NYSE:RSP) also filled the gap yesterday. The ETF tried to take out the gap but was unable to. RSP was very sold, falling below 30 on the RSI and the Bollinger® Band.
Goldman Sachs
Goldman Sachs (NYSE:GS) also filled the gap yesterday, but could not push beyond it. The trend here remained bearish at this point.
GM
The gap in General Motors (NYSE:GM) was also filled Tuesday, with a lower trend still in place.
Boeing
The gap in Boeing (NYSE:BA) was also filled, with a solid downtrend still in place.
