Stocks Rise For A Second Day Ahead Of Turnaround Tuesday
Michael Kramer | Jan 31, 2022 11:59PM ET
Stocks continued to rally from their oversold condition and avoided one of the worst single months in some time. Monday saw another considerable buy imbalance of over $4 billion worth. It follows Friday, $6 billion to buy. So this leaves me with the impression that a lot of this may have had month-end rebalancing stuff. The VIX also continued to move lower on Monday, closing at 24.80.
The S&P 500 managed to finish the day higher by 1.9%, and the NASDAQ ended the day up by 3.2% on the Invesco QQQ Trust (NASDAQ:QQQ)s.
But again, just looking at the charts, it seems like there is a high likelihood the rally has ended, and the ABC retracement pattern off of last Monday’s lows with wave A equal to the length of wave C. There could be another 10 points to go to the S&P 500 cash index, to 4,525, but I think that should be it. We will have to see what happens Tuesday.
The VIX also fell sharply yesterday, which certainly supported the rally. The index managed to fall back to support around 25, and that level held. The volatility in the market has been pretty wild, and at 25, it probably doesn’t have much further to fall.
The VIX currently implies about a 1.5% move in the S&P 500 daily, and given the moves in the market recently, 1.5% seems about right.
The SKEW index also fell yesterday, which is odd given that the VIX was down sharply. The takeaway is that the move down in the VIX was related to traders selling their puts positions again as the market went up and not due to traders selling volatility short. It is a sort of important caveat because short volatility sellers always rescued the market in the past.
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It seemed like a bottom feeder day, with all of the stocks that have been destroyed rising. Block (NYSE:SQ), for example, rose by almost 11%. Could it increase back to $133? Sure; the stock is more than oversold enough for that to happen.
Shopify (NYSE:SHOP) also rose by nearly 11%, and it could just as quickly move back to $1032.
Tesla (NASDAQ:TSLA) also rose by nearly 11% on Monday, but only managed to get back to the trend line. That downtrend has been in control, and while the stock can go back to $992, it doesn’t seem likely to me.
So we will see where this goes on turnaround Tuesday and how long these stocks can hold on to their gains.
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