“Success always makes obsolete the very behavior that achieved it.” Peter Drucker
“Deep inside of a parallel universe
It’s getting harder and harder to tell what came first…” Parallel Universe, Red Hot Chili Peppers
The SPX has not seen a 1% move in either direction for 19 consecutive trading days.
This is the “calmest” stretch of volatility since December 2024. We know how that ended.
Last month we noted that the Momentum Peak in the SPX was struck on December 6, 2024.
The index traded in a wide and loose range until two failed breakout attempts:
The first on January 23, 2025.
The second in mid-February.
A 7 week 1300 SPX point slide followed.
It took the A Train to the January 2022 high.
Just as NR 7 Days, the narrowest range in 7 trading days, are often the harbingers of an expansion in volatility, so too periods of a contraction in volatility are often precursors of great expansion in volatility—such as we saw from mid-February.
Call it the calm before the storm.
With market participants frog-boiled in this pot of calmness, minor surprises can trigger shockwaves.
We remember the persistent calm stairway to heaven in late 2017 into late January 2018 that led to a flash crash and one year of Volatility Mean Reversion.
Tuesday may have foreshadowed the potential for out-sized moves.
Many “generals” got arrows in the back yesterday—in particular the semi-conductors.
NVDA shed 9 points before stabilizing.
AVGO knifed 12 points lower before a meager bounce off its 20 dma.
These two were just off record highs.
MU (a Hit and Run short position) was well off its June highs when it snapped its 50 day line on Tuesday.
Then ,after reporting Tuesday, TXN careened 25 points to its 200 day moving average.
The SMH sank 8 points to test its 20 day moving average for the first time since June 2nd.
The SMH has not closed below its 20 dma since reclaiming it on April 24th…90 Gann days/degrees ago.
So Tuesday’s action looks pivotal in that respect if we get downside follow thru.
A close below the 20 dma would be a conspicuous change in character for the chips.
And as the chips go, so goes tech and as tech goes so goes the market.
Other tech bell weathers got hit hard.
Names include PLTR, HOOD both of which stabilized after a morning downdraft.
But ORCL, NET, SITM, FN, LITE and NFLX remained water-logged.
In short the crème de la crème got creamed.
Maybe it’s not different this time and the buy the dip conga line steps up to the plate steps up to the plate.
Since April they’ve never missed an offer they didn’t like.
Yesterday’s report suggested an air pocket could show up immediately.
While the SPX rallied back to actually better Monday’s record high close, many momentum darlings did see air pockets.
So why didn’t the SPX sag?
In a word, rotation.
While winners got hit with an ugly stick, many laggards lifted—spear-headed by the home builders, courtesy of DHI earnings. DHI ramped 22 points.
Laggards that squeezed higher include:
WDAY, OLED, RH, ADBE, and W to mention a few.
Mr. Market can rotate to a point. After a while the tires are just bald despite moving things around and there is no traction to be had when an icy patch shows up.
The upcoming week includes some potential icy patches:
The FOMC meeting. No lack of controversy there with a Trump/Powell feud percolating.
A key tariff deadline, and a wave of earnings reports including TSLA and GOOG tonight.
If they beat and the reaction is anything like NFLX, players will sell first and ask questions later.
In sum, one well known strategist out of Blackrock stated yesterday “Credit is in the best shape I’ve seen in my career.”
I can’t help but wonder if that sentiment isn’t already priced in. Can it get better than this?
If the market has been gorging itself on a banana split of rotation, what goes on top of the whipped cream?
Let’s take a look at some names Hit and Run played on Tuesday.
We shorted FRHC on the open based on its Lizard sell signal on Monday…a 10 day high Topping Tail.
We only had to wait minutes to be paid.
Luck counts in trading. It’s not dirty money.
SHOP was a short idea from Monday night’s stock report.
From its April 4th 70 low 129 is a 540 degrees up, a “cube-out”, a true square being 540 degrees.
HOOD was also a short idea from Monday’ night’s report, having left a Jump the Creek sell signal on Monday.
It closed below Friday’s up gap, suggesting an Exhaustion Gap.
Hit and Run shorted PLTR on Monday as it left a Hidden Dragon sell signal…a double up inside/down pattern that opens the door for lower prices.
On the long side we alerted a buy on ASTS at 52.50 on the Hit and Run Private Twitter Feed.
In addition to our AGQ and GDXU metals long plays, Hit and Run took a long in gold miner AEM on Monday at 122.50 when it became clear that it was going to go out with an Angular Rule of 4 buy signal.
In sum, with stocks chasing expectations higher, if there are a few other marquee mishaps like NFLX, the market could hurt itself falling from the penthouse suite.