Earnings Update, New Home Sales, & The Fear Trade Being Unwound

As a result, the “fear trade” is beginning to be unwound. Gold is down 15% from its recent highs, the 10-year treasury bond rate (although still low) is up from the 0.398% level it briefly traded at during the height of the March panic.

The volatility index (VIX) – chart above – during the March selloff in stocks, almost traded above the highs of the 2008 financial crisis. That index is well off those highs, and briefly traded below 20 on Friday, but still clearly above the pre-COVID low levels.

20 is a technically significant level in my opinion. Most bull market advances occur with the VIX trading below 20. A VIX in the 20 to 40 range is more of a traders market with increased volatility. And a VIX at 40+ is dangerous.

I suspect we won’t see the VIX stay below 20 while the threat of more ridiculous lockdowns is still upon us. It’s probably the biggest near-term threat. EPS projections would be highly unreliable should such an event occur again. Even so, the worst of the damage has already been done, unfortunately. So I doubt it would have a major impact again. Hopefully, we never have to find out!

With the other 3 major averages all trading above prior all-time highs, the only visible potential resistance level I can see resides in the Nasdaq 100 index (chart above). The range is 12,417.45 to 12,439.48, which represents the open price gaps from September 2nd.

This week we’ve got some key economic data points like ISM Services & Manufacturing, along with the jobs report. We’ve also got some key earnings for the software stocks that have done so well this year. The ones I’ll be paying special attention to are:

Zoom (ZM), Salesforce (CRM), Crowdstrike (CRWD), Zscaler (ZS), Docusign (DOCU), VEEVA Systems (VEEV).

I own them all and have actually reduced positions in all of them except VEEV recently. They all have had such great runs this year, I figured its time to start looking to allocate some money to the “reopening” trade, since the markets are always looking 6-12 months in advance.

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