Stocks Race Higher On May 22 From An Options Related Hangover

Stocks finished the day up, but well off their highs. Today felt like an option-related hangover from last week, with a ton of repositioning and short-covering. The 10-year fell about 2 bps, hardly enough to revive the bull run. The bottom line today just seemed like a day when the stocks are retracing from some of their losses last week, with not much to show for it.

S&P 500 (SPY)

The S&P 500 hit resistance around 3,950 and back right off, so no surprise. I have talked endlessly about how this 3,950-60 region on the S&P 500 futures is the upper end of the range, and it remains that way.

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The VIX finished the day at 18.9, its lowest level in some time. We have talked a lot about this too, and how the range had been 20-22, which is clearly in jeopardy if we can’t retake 20 tomorrow. The VIX is falling because overall options volume is starting to decline, which isn’t really a good sign for equities, resulting in market makers reducing implied volatility levels. So we will have to see what happens. The strange thing is that the VIX fell hard today, but the S&P 500 could not break out. It means that if the VIX continues to drop and the S&P 500 doesn’t break out, this equity rally may really be over because the S&P 500 would have lost one of its key energy sources, falling Implied Volatility.

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S&P 500 Growth (SPYG)

The S&P 500 Growth ETF had a good day, but again, it just appears to be a gap-fill, and if that is correct, we are likely to see the selling resume tomorrow.

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Apple (AAPL)

Apple was no different rising, filling the gap, and failing at resistance. At this point, we can easily argue these are retracement patterns and not patterns of a stock about to make a big move higher.

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Tesla (TSLA)

Tesla did the same thing today, filling a gap and hitting resistance around $695.

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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