The VIX Is Growling - Morning Market Squeeze

Key Tactical Takeaways:

> After many failed attempts, the $VIX finally closed > its 1 ATR stop on Tuesday. While such signals tend to be followed by periods of even higher volatility, the stop we really need to worry about is the 2 ATR level at ...

> Although a major source the equity bid has now been put on hold just as the Presidential cycle is about to peak, the ripple effects of Tuesday's surprise announcement have yet to drive SPX below the bullish ST Noise Buffer at ...

> With gold closing < the bullish ST stop after failing to push above the bearish NT Stop at $1915.30 on Tuesday, the bearish near-term trend is allowed to resume. Pending a close > 1915.30, risk stays leaning to ...

> The dollar has really reasserted itself against the yen in the past 72 hours. As a result, we've added a short ... position to our trade ideas sheet.

Some Quick Thoughts:

After dropping to and stopping right at the bullish ST Noise Buffer at ... in response to Tuesday's latest Twitter shi$show, markets are rallying this morning, probably on the expectation that the attention-hungry leader of the free world will change his mind regarding his decision to halt stimulus talks. Though we're not expecting such a reversal, such a change of course would come as no surprise in 2020.

Last night, we took a quick look at what it typically means for the benchmark S&P 500 when the technology vs. utilities ratio suffers a technical breakdown as significant as the one we've seen this week (see page 9 for more details). Without doing an official backtest, we can tell you that in almost every instance, such deterioration in risk leadership has been accompanied by ... We're still a long way from the ratio mending itself, especially now that the democratic-led House Judiciary Subcommittee is calling for tech giants like Apple, Facebook, Amazon, and Alphabet to separate popular online platforms from their business lines. So far, beneath the rest of the chaos, this news isn't really making waves, given that it is based on the reporting of just one subcommittee. Since big tech has essentially carried this market in recent months, we’ll be keeping a close eye on these names for signs of deterioration.

Before you go, we must highlight the fact that the VIX closed > its lower sloping short-term trailing stop at ... on Tuesday. Given our historical study from last week (see page 8), this is a welcome development. For now, this is just an indication that even higher volatility is in the making for the short-term. Ultimately, for the VIX to signal that it is poised to enjoy a more sustainable and potentially damaging up-cycle, settlement > the near-term trailing stop at ... is required.  

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