foxex: Who's Buying?

Chart Advisor | Focus on the Price

Monday, February 24, 2020

1. Stocks sell off hard, with subtle signs of opportunistic buying

2. The VIX says there is more selling to come

3. The only stock on the rise today

Market Moves

It isn't a surprise that the Nasdaq 100 index (NDX), S&P 500 index (SPX), Dow Jones Industrial Average (DJX), and Russell 2000 Small Cap index (RUT) opened with a calamitous gap lower. However, it is surprising that two of these benchmarks still maintained their upward trend of the last four months. Even more surprising is which two did so.

The chart below shows a four-panel comparison of the day's activity. This was a textbook exhaustion gap. The two indexes that maintained an upward trend (at least so far) are the Nasdaq 100, as depicted by Invesco's index tracking ETF (QQQ), and the Russell 2000, as depicted by iShares index tracking ETF (IWM). Though these two indexes dropped more than three percent lower on the open, they closed higher than the lowest close in January. The other two indexes closed flat or lower on the day. This is a curious outcome because it suggests that opportunistic buyers were prepared to buy up more risky stocks at a time when the market was exhibiting panic-selling conditions. This may be a hint that this particular sell off won't last very long. But would you be willing to take that bet today?

The VIX Says There is More Selling to Come

On days like today, astute chart watchers know that it is important to review the price action on the Volatility Index (VIX). This index doesn't precisely predict what will happen next in the markets, but it does give those who review it an excellent indication of what the option market makers are thinking. Institutional option sellers set the prices for options by adjusting their implied volatility, and when they inflate the value of specific options, it rolls up into an aggregate and shows up in the VIX chart.

Today's VIX chart shows that even though the S&P 500 opened low, fluctuated and traded lower, the VIX gapped up and closed significantly higher. That means option sellers saw increasing demand for options throughout the day, and that demand held all the way through to the close. If this is any indication of the future, investors are still quite worried and it won't take much to get them to sell more stocks and send prices lower in the day or two to come.

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The Only Stock on the Rise Today

It's not too hard to figure out why Clorox (CLX) shares are on the rise today if it was news about a sickness that drove investors to sell. This company makes a lot of things that would be useful in the medical field, but nothing quite so valued as the best-known anti-bacterial liquid on the planet. It's not that it would cure the deadly strain of Coronavirus, but that it would be snapped up by everyone who wanted to clean, clean and clean again any surface of suspicion in a contagion-panicked world.

The chart below shows how this stock not only opened higher but traded higher on the day. Of all the stocks in the S&P 500, this was the only one to do so. The Average Directional Index (ADX) indicator, shown below the chart as a purple line, tracks the strength of the trend in a stock. CLX shares look like that strength is gaining.

The Bottom Line

Stocks fell today amid rampant fears over the economic impact of the COVID-19, the current strain of the Coronavirus making headlines. But that didn't stop a few adventurous buyers from trying to play the contrarian. The VIX level remained elevated, which probably doesn't give those buyers a lot of hope. The one stock that did gap up and rise higher today was Clorox. Is anyone surprised by that?