Karpel’s Corner: Volatility Is In the Air

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

An important trend I’ve been watching is the slippage of the Small Caps ($IWM), which signaled a red flag. Yesterday, they broke hard and the Large Caps ($SPY) followed suit. The S&P 500 has now settled below its 50-day moving average. With the weakness in Small and Mid Caps, a challenge of the August lows (1904 on $SPX) has increased dramatically.

On Monday’s Tradespoon Live TV, I said that the S&Ps were pricing in a potential $46 move going into the Employment numbers. We are there already.

I guess this is what we should expect in the month of October–lots of volatility. On the first day of the new trading month, it has so far has not disappointed. I look for this trend of volatility ($VIX) to continue. I would only expect a deeper price change in the market if the $VIX slices through the August highs of 17.04. That could signal some deeper pullback is in the making.

One last follow-up from yesterday’s post: Utilites ($XLU) has bounced 1 percent. This confirmed the uncertain sentiment we see growing, and the shift to more risk of asset trades.

See you next time at the Corner!