Frustrating day for me, that’s for sure. Everything went the right way until an hour before the close. Resistance at 4,525 was holding and then with an hour left, the market ripped higher as the VIX tumbled.
The index managed to close at 4,546, finishing higher by 69 bps. There is a massive resistance zone coming up at 4,550 to 4,575, which is the downtrend that started off the Jan. 4 highs. After that, the next level is around 4,620, which is the bottom of the diamond pattern that started at the end of December.
It is not clear to me if the S&P 500 has further to climb or not. From the standpoint of the equity market continuing to rise, it is now doing precisely the opposite of the mantra that took it to this point, which is not fighting the Fed. The Fed is withdrawing stimulus and is on a path to tightening financial conditions, so the move higher appears to be against all of that.
At this point, unless the market pulls back sharply on Wednesday, I am going to have to reexamine this more closely because it seems this is still very much a short-covering rally, but it isn’t clear where it stops if it moves beyond the yellow triangle on Wednesday.
SKEW
I continue to think that because the SKEW index continues to hardly move, suggesting volatility selling is not taking place, that means the VIX is falling due to puts being closed. And with yesterday's sideways actions, puts would have been losing time value, which would help explain why we saw a rally in the final hour.
TIPS
TIP rates rose dramatically on Tuesday after the ISM data. That is what made this day so frustrating. The iShares TIPS Bond ETF (NYSE:TIP) fell by 1% and nearly back to its lows from Jan. 19. The TIP ETF also saw the RSI rise back to the downtrend, which is where it failed to advance. Momentum is very much for the TIP ETF to move lower.
Alphabet
Alphabet (NASDAQ:GOOGL) reported results that were better than expected, and the stock was moving up sharply after announcing a 20-for-1 stock split. The beat on the revenue and earnings was strong, but most of the earnings beat came from their equity portfolio, and their TAC expenses were much higher than expected.
In all honesty, I’m surprised the stock was up this strong. TAC was even higher than the highest estimates, and TAC is something most investors care a great deal about.
Yes, revenue was much more substantial, but TAC has mattered a lot in the past. So, if these gains were cut in half on Wednesday, I would not be surprised; the conference call is likely to shed more light on this.
Advanced Micro Devices
Advanced Micro Devices (NASDAQ:AMD) reported robust results and gave solid forward guidance. There was not much I could find that was wrong with the quarter. The stock was rebounding sharply after hours and testing resistance around $131. I don’t have any opinion on the stock at the moment.
PayPal
PayPal Holdings (NASDAQ:PYPL) was getting destroyed after giving weak forward guidance. I think the gap at $130 is now in play.
