Is Capitulation Getting Close?

There's a notable gap from April 2021 nearby.

Technical Edge — 

• NYSE Breadth: 69% Downside Volume

• NASDAQ Breadth: 75% Downside Volume

• VIX: ~$34

For investors, this environment has been destructive. While the indices are down a reasonable amount, many stocks have been obliterated. 35% to 50% drops are not out of the question, even for high-quality stocks: Retailers like NKE and HD, entertainment stocks like DIS and even FAANG holdings like FB and NFLX. 

Investors are depressed and understandably so. Many of my investments haven’t done well either. 

However, for traders this pain is avoidable. 

We get to go home flat at the end of the day, impervious to what type of gap the market has for us at the next open. We can follow the trends, shorting rallies into resistance or buying dips into support — depending on the asset and prevailing trend. 

We don’t treat our investment accounts like that, but our trading accounts give us the ultimate flexibility. If we can check our bias at the door and trade the action in front of us, we can navigate this mess with a little grace. 

Game Plan — S&P, Nasdaq, Bonds, Individual Stocks

With a $34 VIX and a gap down today, one has to wonder if a capitulation is near. Remember, the market has trouble sustaining a $37.50+ VIX and at some point, we will be due for a dead-cat bounce. 

Surprisingly, our MCK trade got us all three upside price targets. Walmart was a stop-out with minimal damage and DLTR gave us a nice move on Friday for anyone that took it and was able to ride a decent boost into the close. Traders can even use a B/E stop-loss at this point. 

With all that in mind, let’s approach today with an open mind and see what the market has in store. 

S&P 500

I spoke with a few trader friends lately, just bullshitting about the market. They want to trade individual stocks — and so do I. But we agreed that right now, the environment is just too choppy. With the VIX above $30 and the markets as volatile as can be, the whippy action in the individual names is 2x or 3x that of the indices…or more. 

As it pertains to the ES,