Momentum Monday - I Survived $VIX 60

Last week, we talked about the likely possibility of a follow-through. It happened and was much stronger than even the biggest bulls have imagined. It seems that the quick 16% drop in the Nasdaq 100 and 42% decline in semiconductors ETF, SMH was strictly related to a Yen Carry Trade reversal, which blew up a few highly leveraged market participants and now things are back to normal.

I hinted that this might be just another garden-variety correction last week for two main reasons. First, there were plenty of favorable reactions to earnings during the drawdown. And second, an increasing number of stocks showed relative strength and were setting up. We had our bounce. I participated mainly through SOXL. Now, what’s next? New all-time highs or more elevated volatility ahead of the elections? Maybe, a little bit of both. I wouldn’t be surprised to see new all-time highs but also be prepared for big short-term shakeouts. The market hates uncertainty and those elections seem to have very even odds.

The market bounce was so quick that it caught many market participants unprepared. So many still live in the past believing that a big three-week drop will take many weeks to heal. Today’s tape is much faster, and the drops and the recoveries happen much quicker. What is the next most logical move in the market? Granted the indexes and many stocks are extended in the short term. Those on the sidelines are afraid to chase here and for a good reason- the risk to reward is not optimal. But everyone is waiting for a dip to enter. A dip that would form a higher low and give us a level to trade against.

If you are eager to short this bounce, I’d wait for a move below the previous day’s lows first, at the very least. I am open to any scenario but focused on the long side right now.