Scott Burrill - Market Notes

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Scott's notes
Scott's Market Notes

Bad news is priced in...for now

Apr 6, 2020

I hope you are well.


We remain fully operational and committed to serving you during these unprecedented times. Please reach out if we can be of assistance.


Last week was a victory as the S&P 500 closed range-bound, within its weekly implied move, finding balance near 2500.


In terms of volatility, while the S&P 500 ended the week down, volatility collapsed since the market failed to drop convincingly outside the weekly implied move.

While volatility remains elevated, the market has discounted a recession over the near term, and seams of risk come into focus when evaluated since February 21. For now, barring another shock, we are past peak volatility through April's option cycle.


While we are by no means minimizing the horrific headlines, the market, as exhibited by significantly lower implied correlation levels and falling volatility, is allowing for greater dispersion along with single stocks and favors rotation and stock selection. This is timely for active management and anticipates the next earnings season.


From a seasonal perspective, and our view for a pronounced trading range, April is the highest return month tied with November for positive returns, with an average over 30 years of 1.61%, and a range of 9.39% to -6.14%.

Let's pivot to the shortened holiday week and use our tools for guidance.


The S&P 500 Weekly Option Implied Move is + / - 119 points or a range of 2608 to 2368 with 47% implied volatility.


The weekly trend remains down, and the magnet suggesting bias is currently neutral to up.


Economic Reports remain overshadowed by the news flows of the virus, and all but the most recent reports reflecting current data such as jobless claims, mortgage applications, and sentiment are old news.


Updated Index Levels.

Take care and stay healthy,


Scott

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