8/8 Recap

Nasty selloff today. Overnight we got some awful data out of China. Exports were expected to be down 9.8% they were down 14.5%. Imports were expected to be down 5.6% they were down 12.4%. China is really struggling right now and it spooked the market. Then we woke up this morning to what is probably the highest quality of the growth software names Datadog down over 20% on earnings. The reality is, as good of a company as DDOG is, it’s growth rate was naturally going to slow, you can’t sustain 50%+ growth rates forever, but the slowdown was very sharp. Again if anyone was paying attention it shouldn’t have been shocking because the largest cloud name in the world, Amazon, has been telling you that for a year customers have been optimizing their spend and AWS just had it’s slowest growth ever this past quarter at +12%.

The VIX is up 13% right now and over 18 for the first time in a long time. It’s crazy that it has taken months to get back to this level but we are normalizing as we near that 20 level. Seasonally, this isn’t the best time of year for markets historically. The violence you’re seeing today is the VIX. That’s why I’ve said for months now I can’t sell puts aggressively until the VIX is at least 20. We’ve gone from 12.xx to 18.xx in 9 sessions, very rapidly and had you been selling puts with leverage over the last few weeks, you would have been really hurt.

The SPY again tried for higher and was rejected right at the 8 and 10 ema convergence. It’s making another nasty looking move lower. You can see the gap I highlighted right below nearing a fill now. I assume that fills in short order as we’re right there. The last time we touched that white trendline from the October bottom was in May. It feels like we’re heading for a test of it at the moment. We’re now on what looks like our 5th close below the 8 ema and a clear weakening trend.

The longer term outlook is still bullish until we break that white line below. This week appear to be our first nearing the 8 week(blue line) and we will see how the market reacts once it touches. All in all, this is just a normal dip within an uptrend until otherwise seen, in the chart.

Yesterday I had someone ask me about do the options flows show when the market is going lower and I’ve discussed this topic in some older posts, but its not so much the option flows as it will be that uptrend you see above will break. It always happens, look at these examples. You will see history repeats itself. A selloff doesn’t just happen, a trend breaks, so relax, we’re not going to have a market selloff until a trend breaks and that’s when you start buying puts. Again last quarter those who were here know I bought puts multiple times on the break of trend, it happened 4 times, but big tech earnings saved us every time, we reclaimed trend and have moved higher. Still, the trend breaking is the only way to know when that sell off is coming.

2018 Market Selloff

2020 Covid Selloff

2022 Selloff

That is why the charts are so important, they are showing you the truth. The buying and selling is all seen in those charts, people can choose to ignore their relevance or they can listen to them. For now, as my weekly chart above shows we are still in an uptrend. Key word, for now.

Trends

Alot of the short term trends are trades put on today in DDOG, IFF and AYX after harsh selloffs. AYX especially I’ve never thought was junk, it’s very cheap. It seems like the kind of name a Thoma Bravo would take out. Apple somehow is completely broken down and the weakest name in the market the last 2 days, but 1 day after all those put sales yesterday it’s somehow green with the /NQ down 200 points. I still think Apple will lag for quite a while with that breakdown and warning for the next 2 quarters. Amazon is back to leading on all timeframes and one of the ones that has caught my eye on the 2 week is NICE. I highlighted it last week, but for a relatively obscure name it has seen alot of bullish action in the last 2 weeks.

Week To Date

2 Week

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Today’s Unusual Options Activity

113 Trades Today