Week 31 Major Markets Review

It was an eventful week with the Fitch downgrade and a host of earnings that moved the markets. All the major markets were down for the week. That comes after 3 up weeks.

The VIX closed above 17 which it had not since May 31.

Trending Heat Map

All markets weakened quite a bit this week. However, they still remain trending bullish per my system. Having said that, the QQQ is the closest to turning bearish and will likely do so Monday whether the price is up or not. This is because my system is based on moving averages, and it is unlikely that the price will go up to such an extent in a single day that it will make material difference to the 10day moving average. So, for all practical purposes QQQ should be considered trending bearish.

Performance

The August-to-date is striking. In 4 trading days price has moved close to what it does in a month. It will be an interesting month.

Week-by-Week Performance

The QQQ was the biggest loser. But all markets tanked. Note that both the SPY and QQQ fell more than their expected range at the start of the week. Their expected range was SPY: 1.2% either way and QQQ: 1.92% either way. Statistically 68% of the time price stays closes within the expected move. I guess last week was the outside 32% week.

Week 32 Expected Moves

The expected moves are a little higher than what they were last week. That makes sense given that VIX has risen by almost +20%. As I mentioned earlier, this week the SPY and QQQ overshot their expected moves. Unlikely that will happen 2 weeks in a row.

Strategy

The markets seem to be transitioning to the bearish side. However, nothing goes in a straight line. WE have had 4 straight down days in a row. So, an up day could be coming just based on mean reversion tendencies. So far, all dips have been bought. I do think that could be reversing and we will start seeing price rises being sold.

I will trade small positions as I still think the markets are undecided to some extent. So, mostly mean reversion trades.