Day two of Chairwoman Yellen's semi-annual testimony to Congress did not supply any fireworks to the market. It was as lifeless as a rock for most of the day, with one of the lowest volume days in recent memory; however, the ES futures still managed to crawl to another new all-time high.
There was roughly a one-hour period where volume did substantially increase, because the direction of the market had turned bearish. Apple stock had already been down all morning, but it was at this time that its weakness accelerated and that caused a spillover effect in the futures market.
In the chart below you can see a highlighted area that points out APPLs early low. When this price level was broken and the lower level was accepted (not violently rejected back above the price line), the selling gained a lot of strength. You can also see that it was at this time that volume radically increased. It's unfortunate that the opposite almost never happens.
The ES future's chart was extremely similar at this time and then in to the close. AAPL is heavily weighted in the S&P500, but even more so in the hedge fund industry, and these companies will often use the ES futures to hedge against a falling stock.
This was only a one-day event but the correlation was amazingly close so it bears watching in the future.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
As Janet Yellen wrapped up her testimony yesterday, it seemed the streets were satisfied with what they had heard. We saw swing back and forth before ultimately closing slight up for the DJI, and barely down for both the COMP and SPX. The major reason both indexes were down, was due to a lot of profit taking in AAPL. That stock alone helped push the rally in the COMP over the past week, and it was the major reason the COMP finished negative. I can see the markets bouncing around today. I suspect we can even drop a bit, although a rally is definitely not out of the question. I think though with the end of the month trading, we could see some profit takers, and that can lead to a squeeze on buyers. Watch out if we do drop with some velocity, as it will only mean more buyers may have to take some profits. Otherwise expect the expected, and expect new highs yet again.
One of the first questions that a new student typically inquires about is the concept of implied volatility. What is it and more importantly how do we use concept in our signal methodology? Think about implied volatility as a proxy for standard deviation. A stock with an implied volatility of 50% means that the market "thinks" with a confidence level of ~67% that the stock will be +/- 50% from the present price (one SD) at the end of one year. Statistically, 95% of the time at the end of the year the stock will be within two SDs. And just 1% of the time will the stock be 3 standard deviations from the present price at the end of the year.
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