Nasdaq, VIX, AMC, Silver and EURUSD Talking Points:
- For systemically-important risk benchmarks, activity continued to meander; but the retail vigilantes continued to drive the likes of GameStop, Ripple and Silver to volatility
- Traditional fundamentals will cross the radar ahead, but a convergence in interests may come via AMC and FAANG (AMZN, FB) earnings
- While Euro-area GDP and US manufacturing activity are struggling for influence, EURUSD nevertheless returns to a pressurized technical pattern
Following the ‘Risk On’ Trail
The new week started with a broader appetite for risk-leaning assets than what we had seen to closer out the period before the weekend. Through Friday, it was difficult to miss the contrast between the likes of GameStop and other heavily-shorted stocks flying higher while the S&P 500 led benchmark indices with a -1.9 percent drop to close out its worst week in three months and tentatively break an accelerating, bullish wedge navigating record highs. While there are fundamental markers than an industrious investor could point to in order to justify the Monday rebound or the buoyant (though turbulent) performance of high profile tickers, it seems more likely that FOMO and community conviction seems to be in the drivers seat. While the fad trades are important to watch, my attention keeps straying back to deeper waters for the markets. While this past session showed a jump in global indices, emerging market assets, crude oil and the Nasdaq 100 relative to the SPX (reference to a traditional speculative charge); it remains an uneven platform to project further enthusiasm easily.
Chart of Nasdaq-to-S&P 500 Ratio Overlaid with S&P 500 (Daily)
Chart Created on Tradingview Platform
From last week’s ambitious efforts by retail communities like Reddit’s WallSteetBets board to rouse the most heavily-shorted US stocks (in a bid to swamp the hedge funds preying on the view), we have seen the efforts spread to other areas of the financial system. These efforts have come with a much more uneven level of success and debate as to whether it was a genuine effort by the local trading heroes. Over the weekend, smaller alt-coin Dogecoin failed to hold up the more than 800 percent rally it spurred through Thursday and Friday. Monday’s headlines seemed to be focused on silver. Futures on the precious metal rallied 9.3 percent for the biggest single day jump since May 2009 while the SLV iShares Silver Trust hit an incredible 280 million shares volume where its average has been in the 25-50 million range. While the metal itself is facing the swing high from August as current resistance, I think it is more remarkable to look at its performance in context of gold where the cheaper metal posted its biggest rally relative to the more expensive metal in over 12 years. Back then, the charge was a sharp risk move that charged gold. Can the committed but smaller group of retail interest upend a more liquid asset like silver? Is this really their work?
Chart of Silver-to-Gold Ratio with 50-Day Moving Average and 1-Day Rate of Change (Daily)
Chart Created on Tradingview Platform
While there is good reason to dispute where the vaunted retail crowd is truly active, it is worth pointing out that most of the areas of confirmed and disputed activity have shown struggle to maintain and/or extend the climb. Silver has pulled back at resistance while Dogecoin and Ripple tumbled after just a few days of rally. Ahead, focus will at least briefly turn back to the core group of stocks that have been heavily shorted. While GameStop and others should be monitored for volatility, there is a traditional fundamental cue to test the fortitude of market participants that have eschewed stats: quarterly earnings from AMC. The movie theater group has been a target for the vigilante justice and it is one firm for which the bump has helped management secure funding and where they are looking to take advantage to potentially sell more shares. Will this update embolden, put off or even register? Afterhours trade will tell.
Chart of AMC with 20-Day Moving Average and 5-Day ATR (Daily)
Chart Created on Tradingview Platform
Remember The Dichotomy in Conviction for These Markets
While I am a firm believer in the market setting the course for what matters across the speculative field, conviction that continuously commands the intent of the entire system is something entirely different than a mere turn of volatility. Despite the obvious enthusiasm throughout the market at the moment, I still find it remarkable that those that participated in my poll last week asking when markets would eventually tip back into the next cleansing bear market (20% correction from highs) believed it was a matter of months away. That is not the blind faith we are led to believe is guiding GME traders.
Twitter Poll: When Will Capital Markets Put in for the Next Bear Market
Poll from Twitter.com, @JohnKicklighter
We find similar contradiction in the broader interest for access to markets for the purpose of short-term trading. I find one of the more interesting measures of speculative appetite is the Google search activity (here in the US) for the term ‘day trading’. It is hard to conflate that for anything other than an appetite for short-term trading in these unusually volatile markets.
Google Trend Search Interest for ‘Day Trading’ in the US
Chart from trends.google.com/trends
The irony that this peak in interest around the markets happens to juxtapose the ongoing economic struggle from the pandemic with a particular delay in US stimulus to help carry growth forecast seems to be lost. Then again maybe it isn’t. At the same time as market participants look to find out more about what is going on in capital markets, they seem also to be mindful that conditions are looking more and more like the foundation of a bubble. Google search (in the US) for ‘market bubble’ has pushed to match its record high from June 2005 this past week.
Google Trend Search Interest for ‘Market Bubble’ in the US
Chart from trends.google.com/trends
In the Event of a Return to Sanity and Fundamentals
Monday’s session suggests that we continue to push traditional fundamental matters to the curb while speculative appetites sort their views on what to pursue. That makes for extremely volatile and erratic trading which I don’t have the disposition to engage heavily. Yet, liquidity always wins out. So long as systemic fundamental matters are without traction, the smaller pockets of volume and volatility can draw attention; but a heavy traditional current could shift the balance readily. US earnings (Amazon and Google will also report after the close Tuesday) is one such opportunity, but the precarious lean of EURUSD and the Dollar has me more keeping tabs on technical and fundamental convergence. Perhaps Eurozone and Italian 4Q GDP data today will trip a break that seems loaded.
| Change in | Longs | Shorts | OI |
| Daily | -3% | 3% | -1% |
| Weekly | -10% | 16% | -2% |
Chart of EURUSD with 20-Day Moving Average and 10-Day ATR (Daily)
Chart Created on Tradingview Platform
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