Stocks rallied on Tuesday, managing to reclaim the losses from Monday. The rally appears to be one of those negative gamma rallies, that is, options-induced, and has more options-related hedging flows than anything else.
You could sense Monday night that the “powers” were setting up yesterday for something like this, with the 1% overnight gain that had no legs to stand on. We see this type of thing time and again, but I’m not sure if anything has changed.
More importantly, the S&P 500 yesterday reached the 10-day exponential moving average, and that is where it failed. So that appears to be resistance for now.
When you look at the VIX index at 30 and see 10- and 20-day realized volatility at COVID-like levels. You can only help but wonder.
It’s almost as if the market is saying that all of this trade war-related uncertainty is going to vanish magically. Even the 60-day realized volatility is at 30.
So, you could see yesterday that at least 30 was acting as a floor for the VIX, which limited the S&P 500. It has been flat for a few days now, and as long as that is the case, I think the S&P 500 will continue to form lower highs and lower lows.
In the meantime, the USD/JPY weakened to 141.59, and it managed to survive a test of support, with a brief break below 140. Where the USD/JPY seems to go is what matters, and as of right now, we do not have a good answer. Most of the types of news we need that could break this stalemate won’t come until next week, unless there is additional tariff news.
Outside of that, I don’t think there was much else going on, just the usual daily noise.