What Financial Markets Are Telling Us: No Double Dipping, Stay Light

The markets are closing the gap from Monday’s fall this morning but the bulls aren’t excited as volume remains low on this rebound. The volatility risk premium points to a higher market over the next few days, but my technical reading of key stocks in the S&P 500 is neutral. Yesterday's cross-asset action brought several positive factors for US stocks. Copper's chart is again signifying global growth. Inflation expectations continue to moderate based on measures of Treasuries and TIPS. But there was also one negative factor across global asset classes. The US yield curve bear flattened, reflecting the Fed release and press conference. Taken together I still expect the S&P 500 to be range-bound over the next few days.

This week has seen the bears jumping on the market but the bulls actually releasing their hedges as if this downturn is what they’ve expected. Monday’s downmarket created a bearish spike in the volatility of volatility index (VVIX) but also a bullish downturn in the SKEW index of tail risk pricing, indicating a mixed market of traders. Logically this implies that the bulls have yet to lose confidence while the bears are placing short-term small bets rather than big bets. With the yield curve staying within its range and pointing to mild growth ahead, EM currencies recovering and the major currencies mixed, the global markets are telling us to simply keep hedges in place and buy the dip in small helpings. The only serious risks are a geopolitical shock or a deepening of the delta covid crisis.

Yesterday I sold my position in American Express (AXP) and added a position in Apple (AAPL). My other current market positions are in Activision (ATVI), Amgen (AMGN), Gibraltar Industries (ROCK), Johnson & Johnson (JNJ), 3M (MMM), Pfizer (PFE) and a hedged position in the S&P 500 (UPRO and SPXU).