{"id":209367,"date":"2024-07-19T11:00:00","date_gmt":"2024-07-19T15:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=209367"},"modified":"2024-07-25T15:44:52","modified_gmt":"2024-07-25T19:44:52","slug":"this-is-becoming-a-bit-of-a-habit","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/this-is-becoming-a-bit-of-a-habit\/","title":{"rendered":"This Is Becoming a Bit of a Habit"},"content":{"rendered":"\n

Today seemed to be another morning when the rotation (\u201croutation<\/a>\u201d?) out of big cap tech and into value had continued, though with less ferocity than we have seen in prior sessions, but by midday it had morphed into a bit more of a broad-based selloff.  It would be tempting to think that the gloom was related to the cloud outages affecting Microsoft (MSFT<\/span>) Azure and caused by a software glitch at Crowdstrike (CRWD<\/span>) but considering that MSFT is only modestly lower (though CRWD is -9%), I find it hard to believe that is the cause.  Today is more about fading momentum and overall concerns.<\/p>\n\n\n\n

We of course had the requisite attempt at our daily \u201cbuy the dip\u201d opening rally, but the bounce in the S&P 500 (SPX<\/span>) was partly driven by this morning\u2019s monthly expiration of AM-expiring index options (yes, we still have them).  The expiring open interest in both SPX and Russell 2000 (RTY<\/span>) options was not historically significant, but it was enough to drive SPX up toward 5550 while driving RTY down toward 2200 before they both went on their way.  Remember that expiring open interest in near-the-money options can act as a slingshot or a magnet<\/a>.  This morning they had a modest magnetic attraction that weakened almost immediately after the markets opened. <\/p>\n\n\n\n

My main theme this week<\/a>, expressed multiple times<\/a>, has been that the most popular trades got so crowded that when investors tried to do some normal profit-taking, they brought major indices with them.  The major cap-weighted indices had become so top-heavy with tech that they had no choice but to heavily pressure SPX, NDX (Nasdaq100), and the like when people tried to exit.  The market internals did not reflect a broad-based selloff, even if those indices gave that appearance.  Today, however, rather than seeing a day when other measures like RTY or INDU (Dow Jones Industrial Average) rose despite the drops in SPX and NDX, those too are lower today.  We also see a greater bias toward declining stocks over advancers, but the roughly 2.5:1 bias is hardly a massive one.  As we head into the close, we\u2019ll see if that retrenches, as we\u2019re trying to do around midday, or accelerates like it did other afternoons this week.<\/p>\n\n\n\n

One measure that I am watching closely is of course VIX (Cboe Volatility Index).  It\u2019s very important to note that VIX is now above 16, just days after being mired around 12.5.  There are a few key things to note:<\/p>\n\n\n\n

First, we wrote last week<\/a> about how VIX was actually reflecting a decent amount of risk aversion among institutional investors despite its low reading.  The reasons for that assertion were that:<\/p>\n\n\n\n