Home 2020 Stock Market Volatility Has Calmed in Here, Small, Midcaps Outperform

Stock Market Volatility Has Calmed in Here, Small, Midcaps Outperform


 Small-caps, mid-caps, and most cyclical sectors outperformed the day.

Market volatility has calmed since the extremes of mid-March, and recent moves may augur well for stocks.

The Cboe Volatility Index, or VIX, closed below its 2nd-month future Monday for the 1st time since 21 February, going back to a typical reading.

Since contracts dated further out tend to carry more uncertainty than those closer in, they would normally trade higher, that has not been the case in recent weeks because of the concern caused by the COVID-19 coronavirus chaos, and impact on public health, economies and financial markets.

Similarly, the S&P 500 Index’s 3-month Call implied volatility went above its 30-Day volatility Friday, a phenom that bodes well for equities in medium term.

Since Y 1990 there have been 11X SPX term structure (90-day/30-day) closed over 1.0X for the 1st time in 30 days. The index is relatively flat for the 1st 2 wks afterward and finishes 1 month later up on average 85 bpts.

Once volatility reverts to upward-sloping after spending at least a month inverted, small-cap stocks tend to outperform in the following month.

Investors who expect smaller companies to outperform in the next few weeks buy May 133/138 call-option spreads on the iShares Russell 2000 ETF (NYSEARCA:IWM)

Our overall outlook for IWM is Bullish near term, strong support at 124.91, and the Key resistance is at 158.97 at the close on Tuesday.

128.95+1.69 (+1.33%) at close: 4:00p EDT, 129.90 +0.79 (0.61%)
After hours: 7:59p EDT

Tuesday, the US major stock market indexes finished at: DJIA -32.23 at 24101.55, NAS Comp -122.43 at 8607.74, S&P 500 -15.09 at 2863.39

Volume: Trade on the NYSE came in at 1.0-b/shares exchanged

  • NAS Comp -4.1% YTD
  • S&P 500 -11.4% YTD
  • DJIA -15.6% YTD
  • Russell 2000 -22.0% YTD

HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bullish with a Very Bullish bias.

Looking Ahead: Investors will receive the advance estimate for Q1 GDP, Pending Home Sales for March, and the weekly MBA Mortgage Applications Index Wednesday. 

Have a healthy day, Keep the Faith!

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.