Littlejohn Financial

What Happens After a Huge Up Week?

We don’t know what happens after a huge week. But we can guess: Profit taking.
Last week saw major indexes move up over five percent. That’s a big move. The question is why?
The main reason is likely the softer-than-expected CPI data. This suggests the Fed may be able to slow its pace of rate hikes.
But what about the election? In a word – messy. In the end, it looks like Washington will remain both bitter and disfunctional. However, it’s still not decided. So who knows? If the adds were anything to believe though, there is very little to get particularly excited about. The end result is likely a continued fight between Federal over-spending and the Federal Reserve trying to quell inflation.
The takeaway is pretty simple. The VIX has continued to decline. It’s now at the point it’s likely near a reversal. Why only likely? Because there’s no guarantee this relationship illustrated continues — past performance doesn’t guarantee squat — but if the trend is to continue, it suggests we’re near an inflection point.
What’s different about this chart from the past is the purple channel lines. Those are a linear regression channel for year-to-date movement in the SPX. It shows the downtrend. And it shows last Friday’s close at almost exactly one standard deviation above trend. Meanwhile…
You can see the index is also in over- bought (as we measure it) territory. And, to top it off, it’s also outside the range of expectation for a really big options hedge that JP Morgan runs.
What does it all mean? Again, no guarantees, but a huge push higher last week, an election that probably changes nothing, and a bunch of over-bought indicators suggest… a pull-back is pretty likely. We’ll see, but 3750 looks like a big magnet. And, for the more pessimistic out there, we still have 3300/3000/2800 on the table.
We’ll keep watching. Meanwhile, this is the projection for the week:


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Littlejohn Financial), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Littlejohn Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Littlejohn Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Littlejohn Financial’s current written disclosure statement discussing our advisory services and fees is available for review upon request.
You can see the index is also in over- bought (as we measure it) territory. And, to top it off, it’s also outside the range of expectation for a really big options hedge that JP Morgan runs.
Scroll to Top