Stocks had an eventful day opening at the highs and closing near the lows on June 19. In all, the S&P 500 fell by 2.25% from peak to trough. The volatility shouldn’t have been a surprise, but the truth of the matter is that if the day hadn’t been a quadruple witching day, I think the market would have fallen even more.
The futures continued moving lower after the close, falling to as low as 3,055 - a drop of nearly 2.8% from peak to trough. In fact, the sell-off accelerated; it could even be an indication for how dealers need to be hedged as a result of the gamma roll-off.
What triggered the sell-off was news that Apple (AAPL) would start closing some of its stores in a few states with rising COVID cases. The big question is what happens next, and will more companies begin to follow suit if cases continue to rise.
Right now, this could be the biggest threat to the market because so much is riding on a short lived contraction and sharp recovery. The slightest concern or thought that the recovery might not go smoothly could be a significant speed bump for the market, and this is something that needs to be monitored closer. I’m not sure the market has priced in the risk of slower recovery.
But, also notice that the S&P 500 has failed now three times around the 3150 level, and struggled at that level all week. It could be a somewhat negative sign for what is to come next week.
Looking at it from one more angle and using the SPY ETF, it gets a little bit worse, because we can see how the index not only failed in that region three times, but it also failed three times at a downtrend that is now firmly in place.
The VIX spiked as a result of June 19, jumping to around 35.
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