Election Putting Volatility Back In The Markets

As we enter election day on November 8th, we've seen a spike in volatility across the markets with the VXX poking its head over $38 last week for a brief moment, which hasn't been breached since mid September. For those of you who don't know what the VIX is, it's a key indicator that measures the implied volatility of the S&P 500 index options but is more commonly known as the "investor fear gauge". The VXX is the ETF that follows the VIX and can be traded like a stock. When you see the VIX pushing up you can expect markets to get more volatile, which is what we day traders love and need.

The SPY shed just over 2% last week in the wake of the FBI releasing a letter stating that they were reopening the case against Hillary Clinton and her email server issue after they found more emails in an unrelated case. Below is a chart of the VXX and as you can see volatility is has finally picked up! After coming out of the summer doldrums we finally have some volatility in the markets and is creating some great trading opportunities. If you sat through the summer trading like I did you are welcoming this with open arms and hopefully taking full advantage of the much improved trading conditions with more volume and larger ranges.

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Looking at the SPY chart below you will see that longs were getting stopped out of their positions to add fuel to the selling but found some support at the 200 day simple moving average on the daily chart just above $208. The tape showed weakness all week but finally picked up steam after the FBI cleared Hillary in the email investigation over the weekend with a sharp bounce to the upside on Monday that continued into election day. The markets have favored Clinton as President and with the polls indicating that she is in the lead and she is cleared of the FBI investigation, the tape has been much stronger on the buy side and prices have continued to push up.

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I trade the QQQ 's fairly often and as you can see in the daily chart below it has picked up in both volume and volatility over the past couple weeks. $118 has been a key pivot level over the past few months and is a level I keep a close eye on along with many other traders. With shares currently below that level, I will watch for them to trade back into it as a potential resistance level and a spot to get short or buy puts on. If bulls can reclaim that important level then we could look to take a possible long position. QQQ's are still well above their 200 day moving average that is currently sitting at 110.72 and are looking to take back the 20 moving average as well. The macro trend is still favoring more upside and until it breaks down below the 200 day moving average I will maintain the same bias. Price action far outweighs fundamental opinion so you have to trade what is in front of you and listen to what the market is saying.

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Looking Forward

As the election results settle in and the dust clears we should continue to see increased volatility and plenty of trading opportunities. Their is speculation that if Trump wins the presidency that markets will see heavy selling and is why markets have acted negatively when the FBI reopened the email case or when there has been any sign of him leading polls. Macro data for the past month still points to positive growth and as long as the SPY's can hold prices above their 200-day moving average we should see prices continue to push higher. The Fed says there is “no fixed timetable” for increasing rates but that they are on the horizon as job growth continues to be solid. No one can predict the future so as a trader we have to rely on our trading tools, indicators, and instinct to make smart trading decisions.