Frank Zorrilla, The Truth.

The popularity of shorting volatility has risen exactly when the most popular short-based ETF'S have lost momentum. A few articles in the last couple of months have highlighted how easy it has become to short volatility.  As you can see in the chart below, SVXY has traded lockstep with the SP500, hitting highs and lows almost simultaneously until recently. The SP500 is off -1% from its recent highs and the SVXY is -16% off its highs. This is a character change for SVXY and XIV.

"Each morning, at the market’s open, Seth M. Golden, a former logistics manager at a Target store, fires up the computer in his home office in northern Florida and does what he has done for years: Put on bets that Wall Street’s index of volatility, the VIX, will keep falling".--NYT Wall Street’s “fear gauge” has neared all-time lows this year. That hasn’t stopped retail investor Jason Miller from making a nice chunk of change betting it will go even lower.

The Boca Raton, Fla., day trader says he has made $53,000 since the start of the year by effectively shorting the CBOE Volatility Index, nicknamed the VIX. That includes a white-knuckle day on May 17, when the VIX spiked 46% following reports that President Donald Trump had pressured former FBI Director James Comey to drop an investigation into former National Security Advisor Michael Flynn.--LINK

INVESTORS HAVE NEVER BEEN MORE SHORT VOLATILITY FUTURES. Here's the bottom line; With the can't lose short volatility ETF'S losing momentum this trade just got a little harder, and I would not be pressing my bets nor venturing out into this strategy right now.

The market is under pressure this morning, many will point at Donald Trump's "FIRE AND FURY" threat to North Korea yesterday right before the close as the reason for the weakness. The fact is that breadth has been weak for the last 11-days measured by the number of stocks printing fresh 1-month and 3-month lows. You can also see some of that weakness in stocks down 13% or more in the last 34 days, the pattern has been an expansion of new lows. The charts below tell you the whole story; CLICK TO ENLARGE.

STOCKS PRINTING FRESH 1-MONTH LOWS.

STOCKS PRINTING FRESH 3-MONTH LOWS.

STOCKS DOWN 13% OR MORE IN THE LAST 34-DAYS.

Based on the number of stocks down -4% or more versus the number of stocks up 4% or more on a daily basis you can clearly see that there has been more distribution than accumulation.

Here's the bottom line; you have to give the benefit of the doubt to the bulls, it has been a losing proposition to side with the bears. However, there is time to press, and there is time to sit back. The best thing to do right now is to look at stocks that reacted well to their earnings release, find out why and put them on your personal watchlist to buy when they set up technically, for example; GRUB, and TWLO.

Spikes In 1-month Highs Leads To A Breather-Zor

The VIX Is Broken--Steven Place Second Half Outlook--Joe Fahmy 20-Day Highs On Fed Day Is Not Bullish--Quantifiable Edges

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463. 

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I'm always intrigued by huge bases, typically a prolonged period of contraction leads to a prolonged period of expansion, hence the term; the bigger the base, the higher into space it goes. Buying stocks emerging from bases is by far my favorite set-up. $Z $PI and $WKHS are some of the ones we've highlighted in the last couple of months. $Z and $PI on 5/18/2017, Zillow has moved 24% since then and PI +50% since the POST. WorkHorse (WKHS) went up as much as 33% since this post on June 2nd, POST. They are not all winners, but it's a high probability set-up.

Stan Weinstein, the author of Secrets For Profiting in Bull and Bear Markets, describes the basing area as follow. The Basing Area: "After XYZ has been declining for several months, it eventually will lose downside momentum and start to trend sideways. What's actually taking place is that buyers and sellers are starting to move into equilibrium, whereas previously the sellers were far stronger, which is why the stock had plummeted. Volume will usually lessen--dry up--as a base forms. But often volume will start to expand late stage 1, even though prices remain little changed. This is an indication that dumping of the stock by disgruntled owners is no longer driving down the price. The buyers who are moving in to take the stock off their hands are not demanding any significant price concession."

PDLI BioPharma $PDLI and Vical Incorporated $VICL are two biotech stocks that are just emerging from long bases. PDLI is emerging from a 7-month base and VICL from an 8-month base. If these stocks can manage to stay above the top of their respective ranges more gains are more than are likely to follow.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

Yesterday the Nasdaq Composite and the Nasdaq 100 (QQQ) both breached and closed below their respective 50-day moving average for the first time since December 2016. The 50-day moving average is a widely followed moving average, whether this breach and close will mean anything, only time will tell. The outcome in the QQQ and Nasdaq composite in the near future will either strengthen or weaken the 50-day narrative. What I think is more important, is something we mentioned on June 16th, here is the gist of it; The FANG stocks have been under pressure. They had a big sell-off that was followed by a small bounce, and then they sold off again. It's probably not a big deal, but the price action in these stocks before this week was very smooth and now they are loose and volatile. Typically, or at least in the past when the price action went from smooth sailing to loose and volatile it signified a trend change, we'll see. LINK As you can see in the chart below, you can see the smoothness of the price action in the NASDAQ 100 until 6/9/2017. Since then the price action has been loose and volatile.

The Semiconductor index has been a leader in the market, and like the Nasdaq, the price action went from smooth to loose and volatile.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

On 4/4/17 Plug Power ($PLUG) announced that it reached an agreement with Amazon ($AMZN) to utilize Plug Power fuel cells and hydrogen technology in its fulfillment network (LINK). Amazon was granted warrants to acquire up to 55,286,696 shares of Plug Power shares at $1.189. Under those terms, Amazon must spend at least $600 million over the life of its contract with Plug Power to take full advantage of that deal.Amazon and Plug Power will also begin further developing Plug's technology together, including expanding the applications for Plug Power's line of ProGen fuel cell engines.

Amazon has done similar deals over the last year with two air delivery companies ($AAWW, $ATSG) and T-shirt company ($KRNT).  $AAWW, $ASTG were big winners for us, we wrote about them here TWO AMAZON DERIVATIVE PLAYS. I think today is a good day to mention the Plug Power/Amazon deal after Amazon announced that it will buy Whole Foods.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

Many are in disbelief of the market action, the indices continue to print highs while a majority of stocks are not following suit. It feels like a lot of money from small caps, energy, banks, biotechs is flowing out and flowing right into Facebook, Amazon, Netflix, Apple, Google, and Tesla. As the Nasdaq Composite prints new highs every day the ten-day difference of Nasdaq stocks new 52 week high minus 52-week lows prints new lows.

We have 531 stocks up 25% or more in the last 65-days versus 506 that are down 25% or more in the last 65-days. That's pretty even for a market printing highs, SP500 vs. the 5-day average of stocks up 25% or more in the last 65-days minus the stocks down 25% or more in the last 65-days.

We also have more stocks down 13% or more in the last 34-days than we have stocks up 13% or more.

What is the solution to this? Own the index ETF's; $QQQ, $SPY, $IWM, $ONEK. Simple. Will this negative divergence finally catch up to the indices? Maybe. Individual stocks can also catch up to the indices and make all this bad breadth go away. Negative divergences, unlike positive divergences, don't work that often and can last a very long time. On the days when the big liquid leaders (FAANGT) take a breather, the laggards bounce. This slow grind up is rocking many to sleep.

Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

There's very old saying on Wall Street; "Sell In May and Go Away," like everything else, sometimes it works sometimes it doesn't. The market has hit a short-term peak in the month of May enough times to respect the saying. Here's the SP500 average return in the past 10-years and during post-election year; peak in May, low in June, retest in the fall. This could be used as a guideline. LPL Research chart

The great Urban Carmel from Fat-Pitch.blogspot.com pointed out that the average intra-year decline when the SP500 has been positive January and February is roughly -7 to -9%.

The reason why Urban is highlighting only the years in which the market was up January and February is that historically when January and February are up months, the market does very well for the entire year.  Since 1950 when the SP500 was higher the first two months 26 times, 24 of those times it was higher by year end. Here's the research by Ryan Detrick.

What I found interesting was that the most recent pullbacks under this January-February criteria have commenced in the month of May.

2013 it was a 1-month shake out that started in May -7.5%.

2012 a 1-month shake out that also happened in May -11%.

2011 a 19% pullback that commenced in May.

2006 an 8% pullback that began in May.

Bottom line; as you can see on the charts above every pullback ended up being a buying opportunity, the short term pain became a long term gain.

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Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

See How I Translate My Tweets & Blogs Into Actual 3rd Party Verified Trades

One of Raymond James's Chief Market Technician Andrew Adams is out with a note today talking about the bear market that has happened underneath the surface while the SP500 has held up well and masked all the weakness underneath the surface. These negative breadth divergences have been discussed ad nauseam on FinTwit.

I’ve used this stat before, but it still astounds me that during 2015 if you had put all your capital into the largest ten companies in the U.S. stock market, you would have ended up making about 20% on the year, yet if you had held the other 490 companies in the S&P 500 instead, you would have actually been down about 3%. Talk about a strangely narrow market! Of course, that period culminated in the stealth tactical bear market in early 2016 when, at the February 11 low, the S&P 500 stocks were down an average of 26.7% from their 52-week highs and stocks in the Russell 3000 were down an astonishing 37.3%, on average. We still contend that was probably the “bear market” that many are still predicting even now, but it does not qualify in the eyes of some purists since the S&P 500 itself was “only” down about 15% from its previous all-time high instead of the requisite 20%.--Andrew

Joe Fahmy discussed this back in December on Fox Business;

Very simply, I have stated this before and will state it again; it makes sense to own the index ETF's has core holdings. By owning the SPY, you will be involved in all the biggest winners that you always hear about on TV like FANG (Facebook, Apple, Netflix, Google) without their respective individual risk. And certainly, you won't be dumbfounded, frustrated, etc., when the negative divergences persist for months, but the SPY is doing well. Owning the indices; SP500, QQQ, IWM, allows you to participate in most if not all of the great companies that come public. You won't get the full participation on the way up, but you certainly won't live through gut wrenching drawdowns that are impossible to live through. Before you sell everything and go 100% into the SPY make sure you are aware of this (below) and take advantage of them.

The average intra-year decline since 1980 has been -14%.

I personally don't believe in being 100% passive, 60% passive, yes, we can probably all agree that you can't time the MARKET, but you can time stocks.

HAT-TIP; TheReformedBroker

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Frank Zorrilla, Registered Advisor In New York. If you need a second opinion, suggestions, and or feedback in regards to the market feel free to reach me at [email protected] or 646-480-7463.

See How I Translate My Tweets & Blogs Into Actual 3rd Party Verified Trades

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We live in a world in which we are bombarded with information, tweets, blogs, etc., content is the new salesman, content is the new marketing, content is the new networking. With information being so readily available, bloggers try to differentiate themselves with their writing skills, volume, and consistency, putting out blog posts to meet quotas. We are seeking to stand out from the crowd by showing performance, by taking all the information and seeking alpha, that’s the sole purpose of the blog. It won’t always be pretty; it’s never easy, and performance is spotty, but we seek superior risk-adjusted returns, not notoriety for our writing skills.  If this is something you can relate to, then this blog is for you.

The great Urban Carmel from Fat-Pitch.blogspot.com pointed out that the average intra-year decline when the SP500 has been positive January and February is roughly -7 to -9%.

The reason why he is highlighting only the years in which the market was up January and February is that historically when January and February are up months, the market does very well for the entire year.  Since 1950 when the SP500 was higher the first two months 26 times, 24 of those times it was higher by year end. Here's the research by Ryan Detrick.

What I found interesting was that most recent pullbacks under this January-February criteria have commenced in the month of May.

2013 it was a 1-month shake out that started in May.

2012 a 1-month shake out that also happened in May.

2011 a 19% pullback that started in May.

2006 an 8% pullback that started in May.

2004 March.

1998 July.

1997 February.

1996 May.

1995 July.

1993 March.

This does not mean that you sell in May and go away, but should be on the look out for quick shakeouts.

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