foxex: Volatility Remains

Friday, October 4, 2019

Volatility Remains

Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Friday, October 04, 2019

1. Market Rebounds but Volatility Remains

2. Worried Investors Like Walmart Over Amazon

3. Volatility and Resistance Not Kind to J.P.Morgan Chase Share Price

Market Moves

The major market indexes extended their Thursday rally into Friday spurred on by the news delivered in the nonfarm payroll report. The announcement specified that unemployment was down, but so were wages and the number of new jobs created, the latter two missing their forecast. The combined data suggested to traders that, perhaps, the Fed will entertain further rate cuts later this year. Fed Chair Jerome Powell did not dispel that notion in his speech today either.

Meanwhile the Volatility Index (VIX) and the ETFs which track 30-day (VXX) and 90-day (VXZ) forward-looking futures on the volatility index all show an undeterred upward trend. This signal is typically followed by downward moves in price over the weeks and months that follow.

Worried Investors Like Walmart Over Amazon

The roller-coaster action shown by the S&P 500 (SPX) index demonstrates that investors are worried about where stocks will end up next. This likely explains an interesting dynamic revealing itself in the comparative price action in shares of Amazon (AMZN) and Walmart (WMT). Since the last earnings announcement Amazon shares have been on the decline and Walmart shares have been on the rise. Worried investors tend to prefer defensive stocks such as consumer staples companies over growth stocks. Since Walmart rebounded even higher than the Nasdaq 100 index (QQQ) today, it becomes apparent that investor worries linger as earnings season approaches.

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Volatility and Resistance Not Kind to J.P.Morgan Chase

The price action for shares of JP Morgan Chase (JPM) have been in a sideways range for over a year. However, within that time an interesting pattern has occurred and it seems ready to repeat. Price volatility has increased (as shown in the weekly time-frame chart below) each time the price has approached $120 per share. On each of the three occasions where this has occurred, shortly after the increase, the share price dropped significantly lower. With earnings coming up in the next three weeks, the timing of this signal may be a matter for investors to consider. When price volatility shows up just before earnings it can often mean that institutional investors may be selling out of their shares of the stock.

The Bottom Line

U.S. stock indexes extended their rebound despite the fact that volatility indexes remain on an upward trend. This indication of investors' nervousness is reflected in the comparative price action between Walmart and Amazon. Nervous investors would naturally prefer a company like Walmart over Amazon. Leading into earnings season it appears J.P. Morgan Chase may be showing a volatility signal that has historically been bad for its share price.

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