Markets sell off this morning. This is likely due to a bunch of technical chart reasons more so than the reasons you will here in the media. Follow up to the Monday Rally, backing and filling.
A. The SPY was overbought in the near term and trading into major resistance from Feb 25, 2020. That was a major sell off day with 218.9 million shares traded. This is after one of the greatest market runs in history. People with losses are looking to get even. Investors have been in pain and now they’re even and can take money off the table. This is the most important index because the S&P 500 because it’s market weighted and represents the 500 best companies in the US. It’s been working well for over 20 years for Nick.
B. The recent put/ call ratio was very low over the past week. This tells me that there are a lot more call options in the market vs puts. This is a contrarian indicator and has been useful for short term moves. The reading has been very low, which is very bearish. Too many bulls.
C. There have been lots of parabolic charts in many micro cap biotech stocks. Plus, there have been other parabolic moves in stocks such as NKLA, went from $13 to $94 in a very short period of time. Tesla pulls back from the $1000 share price. When this happens the froth has to come out of the market. Next week is also option s expiration for June. This is also a quadruple witching options expiration. That means that 4 different options classes will expire next week. Options expiration is always a time of game playing by the institutional traders.
D. VIX is probably going lower after the recent bounce. It’s up 12% so far today. But Nick believes it will go below the 200 day moving average soon.
E. Don’t Gamble! Don’t chase markets at highs!
Bottom line: Watch the chart patterns that set up into next week.