[Corrected and Updated]
I wish I had coined the term for the week, but the honor goes to Mish Shedlock over at Mish Talk, a great blog if you have never encountered it. FAANG Roulette is the best description of the week. Of course, FAANG refers to Facebook (now Meta), Apple, Amazon, Netflix, and Google. Lately, we have expanded the acronym to FANGMAN+T. That allows us to add Microsoft, Nvidia, and Tesla. I cannot recall too many weeks with the kind of volatility we just experienced. It isn’t over yet, as the market is trading at new lows after the release of the monthly payroll report.
In this week that was Google took us to the moon, Facebook burned up on reentry, and Amazon … I am not sure what Amazon did yet except destroy a few Market Makers. The crowd shorted too much into yesterday’s close, and they appeared to be wrong as the S&P 500 recovered most of its 100 point loss right after the bell on what supposedly was a blowout earnings report.
This morning, it would appear that the crowd missed something in the fine print – or they are just sour regardless. The S&P 500 Futures have given up the post-close gains and are trading at new lows at this writing, or at least they are running the stops under yesterday’s low.
It reminds me that bull markets always end on blowout earnings, a subtle point seemingly missed by the crowd. In any event, there must have been something in the small print, as the overnight futures are back down to testing yesterday’s low, having both breached the low and come back up inside range at this 4:00 am PST writing.
So our day will be framed by the overnight low and the Weekly Expected Move High at 4521. I need to write an entire article about the daily and weekly expected moves, as they affect the markets with uncanny accuracy.
By Wednesday, any reasonable person would have doubted that the Weekly Expected Move high could draw the market back down by today. But it did with help from the volatility at hand. No matter, though. I am relatively sure that some Market Makers have been battered this week anyway, trying to keep their portfolio deltas neutral with so much activity after regular trading hours.
I will cover most of what you need to know in the new Sunday night video. I can already see that the expected move (and volatility) is poised to widen even more next week.
Also, our foray into the market for leveraged accounts stopped out yesterday. As low as we were, the market went still lower into the close. Cash accounts should still be maintaining existing positions. We don’t have a swing sell signal yet.
The January payroll numbers hit this morning, and new jobs exceeded expectations by a lot at 427,000. I guess you cannot stay home forever – especially when the government isn’t subsidizing you. The unemployment rate dropped to 3.9%. This is all interesting, as the White House prepared everyone for a bad report. Some reverse psychology, perhaps?
Anyway, we are in the new phase where good news is bad and vice versa. Good economic news, and even terrific economic news, likely means more inflation pressure and a less friendly Fed.
Day Traders
At this writing, futures have broken lower (as low as 4437), which shifts the daily expected move range to a high 1.92% at about 87 points. Mark the high and low by adding and subtracting 80 points from the regular session open. I see significant resistance at 4525 and 4556. Support is at 4450, then 4397.
Risk remains high as long as markets are below 4525, with the potential for a sharp upside move into 4600. Puts being covered and a sharp reduction in implied volatility potentially poses a violent rally. The above resistance levels are insignificant if markets can break the volatility trigger at 4525 and move higher. Of course, this would also require a breakthrough in the WEM high ay 4521, which is more possible than usual with the volatility.
On the other hand, the put strikes below to have a fair amount of gamma. These prominent put positions suggest that a violation of the levels will quickly induce volatility if markets decline below those levels.
Today’s Key Levels for Day Traders
Good luck today. I will update everything in the Sunday night video.
A.F. Thornton