The market’s advance today was narrowly built on the shoulders of a few megacap leaders.
The SPX closed higher by 35 points, while the DJIA managed only a modest +49.
Beneath the surface, breadth was strikingly weak: net advances totaled just +318 on the NYSE and +359 on the NAZ.
However, in my experience, this kind of pattern means that animal spirits are simply funneled into fewer stocks causing those names to have outsized moves.
Names include:
STX
OKLO
CLS
GOOG
LITE to mention a few.
Most remarkable about Monday was the behavior of volatility.. The VIX surged 6.3% even as the SPX gained ground—a rare divergence not seen at any time this decade—until today.
Historically such a spilt between index strength and volatility has signaled severe unease beneath the surface, with traders hedging aggressively against potential downside risk despite the appearance of stability in the headline indexes.
I don’t know the full history of these “splits” but I do know that in 1987 the equivalent of the VIX VXO) advanced significantly in the days leading to the August 25th peak.
Ditto the late January 2018 peak.
It took 54/55 days for the 1987 “split” to come to fruition.
In 2018 it took hours. Volumgeddon struck the market starting with a Breakagway Gap that produced an Island Top .
The SPX paused for two days following the gap, then all hell broke loose with the index tumbling 219 points in 3 days. 8% in 3 days.
Additionally, ISEE call buying was at the highest level relative to puts of the year, matching the top in February, before a crash.
In sum, Monday’s action unfolded against a backdrop of heightened anticipation for Wednesday’s FOMC decision.
The markets expect the Fed to cut rates in response to slowing growth and weakening labor trends.
At the same time geopolitical tensions in Europe and concerns over oil supply disruptions exacerbate the risk calculus.
The result was a session that was accented by pockets of frenzied strength and underlying fragility.
In short schizophrenia.
For the moment the SPY 660/661 square-out with April 7, the low day is holding.
After hours the futes were down 24 points and it looked like we would get a possible Island Top on a gap down; however, as II write early evening on Monday, the futures are flat.
Once again, the Roadmap proved that it is all about timing and not amplitude.
Today’s Roadmap shows a trend day to the topside until 1:00 where the market flat-lines until 2:45 followed by a drop into the bell.
Reading between the lines, the interpretation is that the drop will be sharp.
But again that is my interpretation. The main thing is the timing, not the amplitude.