The S&P 500 dropped 2% on what I’m calling Red Friday. The Nasdaq fell as much as 4.5% before it bounced.
Neither move means the real selloff has started. That starts with correlation, and correlation hasn’t shown up yet.
The S&P 500 only got about halfway to the lower edge of its expected move. The options market priced in exactly this kind of action.
The QQQ ran from the upper edge of its expected move to the lower edge. It tagged that level on the button and bounced.
S&P 500 futures have traded in the same box since May 4. That’s six months of going nowhere.
The central point of that range sits at 7,560 in the December contract. The S&P 500 touched it today and bounced right off it.
A real breakdown would leave the S&P 500 near 7,400, dangling off the edge of a cliff. We aren’t there.
The Nasdaq looks worse. I warned on my last two updates that all hell breaks loose under 29,000.
Every earlier test of 29,000 bounced like the market touched fire. Today the Nasdaq pierced right through the lower edge of its volatility box.
The semiconductors got this market where it is. They were up nearly 80% just a few weeks ago. Today they sit up 39% year to date.
Money has been fleeing tech for utilities, health care, financials, and consumer staples. Today those rotations started to fail.
The XLU pays a 2.7% dividend. The 10 year Treasury pays more than that, which kills the dividend argument.
Consumer staples moved like a tech stock this week. The XLF faded today too.
The advance decline line in the S&P 100 sat at 50/50 all day. Plenty of stocks still haven’t been sold.
I heard a statistic last night that over 60% of the S&P 500 sits in bear market territory. The index held up because of technology.
Right now it’s tech versus the world. A tech rally next week likely pulls money back out of staples, utilities, and health care.
A deeper tech selloff drags those sectors down with it. That path brings correlation, and you never get capitulation without it.
I watched it happen in the financial crisis. Traders hid in gold until gold sold off too.
The VIX can’t see what’s happening right in front of us. I’m watching the volatility futures instead, and they’re flashing real risk.
Here’s what else I broke down in tonight’s video:
- November volatility futures traded about 50 cents over December, and nearly $1 over at one point today. November even climbed above January for a stretch.
- Intel fell about 30% today, a little over a three sigma move. It’s still up 63% year to date.
- AMD dropped 12% today. It’s still up 123% year to date, and Micron is still up 177%.
- The S&P 500 prices a move close to $170 over the next seven days, up from about $150 this week. I don’t think that’s high enough.
- Almost $80 of movement is priced between now and Monday. That feels small for the volatility we just saw.
The election next week won’t drive this. The volatility futures would price far more risk around it if it did.
You never hit just one of them. You hit them all, because correlation always wins out.
