The semiconductors finally got their bounce. I’m treating it as a bounce and nothing more.
SMH looks like a classic rip your face off rally after a stretch of heavy selling. I want to short into it, possibly as early as tomorrow.
That short won’t come from hammering futures until my hands bleed. I’ll build it as a structured trade with a defined risk spread.
Today gave the market every reason to pick a direction. We had an FOMC announcement and two heavyweight earnings reports on the same afternoon.
The S&P 500 stayed stuck in the middle anyway.
The tape got choppy when Kevin Warsh hit the stage. It flattened out once he stepped off.
Earnings delivered a split decision. Microsoft caught a fairly strong bid after hours, while Google came off hard and fast.
I don’t care about earnings per share on these reports. I care how the actual move stacks up against the expected move.
The conference calls still have to play out. Either stock could reverse from here.
Volatility shows up most clearly in the rip and bounce.
A sharp rally lifts the tape. Then another bout of selling comes into play.
I can’t time the exact moment this bounce rolls over. The semis already look a little long in the tooth.
The SPX sits a stone’s throw from the upper edge of its expected move at 7,777. A tag of that level, even in overnight trade, would have me looking to hop aboard the short train.
Intel reports tomorrow afternoon. A strong bid into that report could pull me into the short side.
Bonds slipped lower today. Real selling there into Thursday and Friday would lift rates and could change my read on this market.
Here’s what I broke down in tonight’s video:
- Microsoft traded near 530 ahead of earnings with roughly a $30 expected move. The stock is moving higher by almost exactly what options priced.
- Google slid from about 325 toward 300 after its report. Options priced a move just shy of $20, and the actual move came in bigger.
- The SPX priced about a $160 expected move this week. The QQQ already trades slightly outside the upper edge of its own expected move.
- The SPX still prices about $74 of movement between now and Friday. That number looks hot after the rally we just had.
- Volatility futures sit flat between November and December. The market treats the next 21 days of risk the same as the next 49.
I still see plenty of signs of volatility on the screen. This bounce could set up the next leg lower.
