P/E Multiple Compression

Popular overhyped growth stock favorites began the inevitable journey down to more reasonable valuation levels as markets began factoring in reduced liquidity and higher interest rates. Details follow in the Market Review along with another look at WTI Crude Oil from the perspective of the Commitment of Traders Report.

S&P 500 Index (SPX) 4538.43 declined 56.19 points or -1.22% last week. It's now below the upward sloping trendline from the October 4 low at 4278.74 and support from both the September 2, high at 4545.86 and the 50-day Moving Average at 4544.73. Friday's wide outside trading range suggests a price reversal on Monday. Using Tom De Mark's (1) range estimate methodology puts Monday's support low at 4460.32 with a resistance high of 4573.23.

Invesco QQQ Trust (QQQ) 383.13 dropped 8.07 points or -2.08% last week after trading down to support from the 50-day Moving Average on Friday then closing slightly better. Now looking oversold and further supported by the previous September 7 high at 382.35along with the 50-day Moving Average at 380.76 odds are it will attempt to hold this level although loaded with out-of-favor expensive growth stocks.

iShares Russell 2000 ETF (IWM) 214.71 sank 8.14 points or -3.65% after making a feeble attempt to close the gap below the 50-day Moving Average at 227.97 on Monday and then retreating back below the 200-day Moving Average at 223.71. Once again, it declined more in percentage terms than both the SPX and QQQ, for the third week. Although expectations for higher interest rates should eventually help small caps, high multiple P/E compression seems more important, and the yield on U.S 10-Year Treasury Note declined 9 basis points Friday to end at only 1.35%.

CBOE Volatility Index® (VIX) advanced 2.05 points or +7.16% last week ending at 30.67. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, added 1.48 points or +7.05% closing at 22.48% and higher than the September/October pullback.

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Disclaimer: IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter ...

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