Financials kicked off the final earnings season of 2020 and as a card carrying manic market megalomaniac it is incumbent on me to start parsing for potential IV squeeze victims. Much to the chagrin of some of you directional cowboys that is my favorite play but I would be remiss to not point out that implied volatility is not the only way to play earnings. But let’s take things from the top by looking at the overall market:
Something pretty interesting happened over the weekend as I was cruising Airbnb for potential weekend get-aways here on the Iberian Peninsula. Since I’ve always been a stingy bastard I’m not ashamed to admit that I was pretty perplexed by the exorbitant prices that I simply couldn’t square with the glaring lack of demand in tourism Spain currently is experiencing. Part of that of course is due to recurring and erratic COVID-19 lock downs and various other entry restrictions here in Europe. But some of it is also purely self-inflicted as excessive price gouging over the past years already started to be a topic of contention among visitors back in 2019.
It’s Friday morning before the open and the SPX is pinned right at the edge of the weekly expected move (EM). The ES futures pushed a little bit higher overnight but are now treating water awaiting further instructions. Which makes it a textbook example of the very phenomenon that has driven equity markets to the edges of the weekly EM since the introduction of weekly options by the CBOE in 2016. But what exactly is causing this phenomenon, or market behavior in the first place?
In my Monday post I promised you a volatile week and judging by the past two sessions the market does not intend to disappoint. If you take what historically is already the most volatile week of the entire year, add a heaping of political brinksmanship, a controversial presidential election process, ongoing riots, burning cities, an impending release of classified information by the DOJ, and a healthy dash of good old fashioned MSM hyperbole, then you’ve got yourself a veritable tinderbox of market volatility just waiting to be unleashed.
It’s the first Monday in October and that means it’s time to talk monthly statistics. Which are actually super interesting if you’re a stats nerd like me. But even if you’re not you should take heed as there are many misconceptions about this months floating around out there. So let me try to set the record straight, and I’ve brought plenty of exhibits to back up my bold claims.
For the past four sessions equities happily floated along in cruise control, fully in line with an anticipated positive close as suggested by the seasonal statistics for week #40 (see my Monday post). However as it is 2020 A.D., and per my rather prescient post on Wednesday, we should have been prepared for the proverbial spanner to once again be thrown into the flaming political train wreck already hurdling toward us.
Had I read a book last year depicting the events of 2020 up to date I would have probably laughed out loud and insisted that such a scenario was safely in the domain of conspiracy theorists. As this is not a political blog I prefer to keep pertinent opinions to myself and this post will be no exception. Rather it serves as an avid reminder that dramatic events or situations we consider to be ‘impossible’ or ‘unrealistic’ seem to be occurring much more frequently than probability theory would suggest.
Last Friday I warned my subs to not yield to the bearish exuberance peddled across the financial MSM and to instead consider exploratory positions in select tech related symbols. Like the rest of you I don’t have a crystal ball. But what I do have is access to over half a century of statistical data which strongly suggested that week #40 had good odds for a short squeeze. At least judging by the overnight session a first attempt to bang the open into a gap appears to be in the works.
The Brotherhood Of Organized Market Megalomaniacs (BOOMM) has informed me that I have not been acting sufficiently nefarious as of late. Well that all ends today as market conditions have finally opened a door to claiming my well deserved share of ill-gotten gains. In somewhat related news I am currently looking for a small number of well trained minions willing to do my egregious bidding.
I’m aware that I may be eating my words in the not so distant future but alas: I just took a gander at my market momentum charts and none of them are even close to bearish territory, quite on the contrary. In fact what I’m seeing at the current time is simply the natural process of correcting a market that got a wee bit ahead of itself in late August.