Monday Stock Market Gyration Sets Stage For Next Few Weeks

Yesterday was a funny day in the markets as the DOW dumped over 500 points right off the open and then came back. Was it profit-taking on news of the coming stimulus bill or fears of a slightly altered virus strain in England that was the cause of the selling? It doesn’t matter, because the market can be prone to bouts of selling at any moment when stocks are so highly valued as they are now.

What is more important is the action after that open as the DOW actually managed to finish the day green, although the S&P 500 was red. The Russell 2000, though, did better, and silver did even better than that. That’s where the strength is now.

The action in the VIX is telling us that yesterday’s action was NOT the start of a new DOW decline, because it spiked up with an over 30% surge during the day to get to 31. That’s a sign of short-term panic in the market and is not the type of thing that happens at a major top.

This type of move in the VIX in context with the rally in the market is a sign of one-day panic selling that is simply a temporary interruption of the market trend.

Now in my view, the market is not going to just keep going up month after month like it did in November, but instead is actually going to go more sideways to be less volatile over the next few months, with the VIX eventually getting down towards 15 by the middle of next year.

This year has been marked by extreme stock market volatility with an over 30% plunge in the S&P 500 in March and then a 70% rally from that low into Labor Day. Periods of extreme price volatility tend to lead to a contraction in volatility.

In a way yesterday showed that. All it took was a 500 point drop from the high to get the VIX, which really measures sentiment over volatility, to spike over 30%.

I talked about the implications of high market volatility and my outlook back in November in a video you can find here.

Yesterday I posted about the January effect and small caps stocks.

My top small-cap stock for December, INCAF, is one to take note of.

Inca One is in a good buy position now, in my opinion, as it is in a nice range with resistance at 60 cents and support at 50. You can get the details on the company by reading my earlier post on it this month here.