Stocks barely budged today as investors anxiously awaited Fed Chairman Jerome Powell’s speech from Jackson Hole. The Dow, S&P, and Nasdaq Composite remained mostly unchanged.
Ahead of Powell’s remarks, investors have Thursday’s jobless claims and a Friday Personal Consumption Expenditures (PCE) Index release to look forward to.
Unemployment fillings are unlikely to alter sentiment, but the PCE could certainly do it if the inflation data surprises to the downside. The Fed has long favored the PCE over the Consumer Price Index (CPI).
Much of the PCE’s potential benefit to stocks may have already been priced in following the July CPI, however, which was released in the middle of the bear market rally.
PCE would have to be significantly lower than expected to help bulls, especially with Powell’s speech coming later in the day.
Traders may want to prepare for the worst, however, now that the CBOE Volatility Index – or VIX – just triggered a long trade two days ago. The VIX, which measures the implied volatility of S&P options, has not triggered a long trade this year without soon racing above 35.00 thereafter.
Each setup coincided with the VIX breaking its downtrend (blue trendlines) before closing above the 10-day moving average. We had a similar setup last week when the VIX broke its most recent downtrend (yellow trendline). Then, the VIX triggered long trades by taking out the breakout candlestick highs on five occasions, the most recent being on Monday.
It could be argued that the VIX is set for another trip to 35.00 along with a major S&P correction. Every long setup on the VIX this year has paid off in a big way for VIX bulls, making the current one a strong buy as the market approaches a possible VIX-spiking moment (Powell’s speech).
That also means stocks like Oracle (NYSE: ORCL) are in a perilous spot. ORCL closed below its bullish trend (yellow trendline) last week, setting a lower high relative to the high of late March. The stock also closed below the 10 and 20-day moving averages on Monday.
The stochastic indicator is showing that ORCL is oversold. And, it very well could be. But if ORCL takes out Monday’s low, it won’t matter how oversold it looks. Stocks dip below 20 on the stochastic indicator during protracted selloffs all the time.
For those reasons, it might make sense to take ORCL short with a trade trigger of $75.01, below today’s low, as VIX bulls prepare for the next moonshot to 35.00.
