When Will It Stop?

Last weeks volatility and wild price swings have invaded monthly opex week,  Yesterday just as the European markets opened for trade the $SPY was almost $293.

Later on yesterday  the price for the $SPY fell into the $286's for a near $7 intra-day sell off.

The VIX remains elevated closing above the 20.00 level.

...and just like every other sell off we've had since 2009 you dont have to look far to find a reason why the market is pulling back.  There remains plenty of excuses to sell.  Plenty.  And those same bears who were calling this market a bull trap at $SPY $235 and $SPY $180 are pounding their chests at $SPY $288.

While there remains so many excuses to sell, I don't see many talking about the prospects of more upside.  Even as we were rallying to new record highs a few weeks ago, there was no confetti, no celebrations.

Like the new record highs or not, the FED and every Central Bank in the world has been telegraphing their intent on inflating asset prices.  Fighting it has been futile...

And yet here we are, with the market now predicting possibly THREE MORE rate cuts before the end of the year.   Central Banks are ready to put their foot back down on the gas pedal.  That's bearish right?  It depends on your perspective.  For those that have been bearish since 2009  a new round of cheap money is certainly bearish.  It means the FED's QE, NIRP, and TWIST were unsuccessful in creating a long lasting period of economic prosperity.   Rate cuts now signal a top in this Centrally Planned Expansion.  That the last 10 years of central bank infused unicorns and rainbows was all fake.

If you've been bullish, then seeing the FED keeping rates lower for longer shouldn't change your perspective.  The recent pull back has given all those massive share buyback programs more sharebuyback bang for the buck.

For me this pull back is just another refresh before record highs.  The question is how much more downside is left and when will we get the reversal higher?

The month of August has seen quite a few pull backs since 2009.  We had the China flash crash in August 2015.   We had the U.S. Debt downgrade in 2011.

Both caused immediate damage to the markets, but ultimately were great buying opportunities.

I think any more downside will find strong support and likely reverse at ~$277.  Ironically that is the figure the market hit pre-market last week before rallying some $15.

Momentum has turned.  However we have to keep in mind the last trigger had a quick turn back before the upside resumed.  For confirmation that the bottom is in, I'll be looking for a rally back to Thursday's highs, at which point I think SPY will come back to meet long term resistance over $300.

Also we will need to see the VIX rapidly decline back under 15.  Currently it sits over 20.00.

Every VIX rip since the dawn of man has reverted back to the 10-12 range.  If that happens here over the short term we could be looking at new record highs into September.  If not, and we break lower we could be looking at a 2015 August type move, which set up 2016 for a monster rally.  In this case a 2020 election year rally.....

Either way nothing is set in stone quite yet, however we'll be getting our answer soon enough.


Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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