Last weekend, we made the unusual, and unusually boring, recommendation to buy stock.
… this is the kind of time we’d feel good about actually picking up stock to hold for the sake of broad long exposure.
Blah-blah. Our reasoning was that it looked like the market was gearing up for new highs, but we didn’t know exactly when it was going to start moving up.
Well, now we know!
On Monday, the S&P 500 (NYSEARCA:SPY) decided to cut the chit-chat and make that move. A 1.51% move by week’s end, to be exact. Here’s where that move falls on last week’s probability distribution.
Not bad for a few days’ work, huh?
But before we go on to show you this coming week’s probabilities, let’s talk a bit more about the factor that made us say “buy stock” in the first place, and see what it’s telling us now.
The DIX, redux.
Last time, we introduced the Dark Index, or the “DIX.” The DIX tells us how much buying or selling is going on in private, off-exchange stock transactions.
This is good to know because we can see shifts in sentiment (real sentiment, backed up by money) before they affect prices. See for yourself (here).
Cool, huh? But where does this leave us now? Keen observers will notice that there was a pretty low number logged on Monday the 24th, and that might be a bit disconcerting.
Throughout the week, though, the DIX percentages gradually climbed, and by Friday, we were back to a strong reading.
Our interpretation? We can go sideways for a while, sure, but this is still bullish data and we still see new highs on the horizon.
All right, enough about the DIX. Let’s look at what Gamma Exposure [GEX] is telling us for the coming week.
[“Wait, now I forgot what GEX is.”]
Again, for the sake of comparison, here’s last weekend’s projected distribution.
And here’s this coming week on the same scale.
Two things changed. First, some of the tail risk disappeared, and second, so did some of the gain potential (c’est la vie). Recall that when GEX goes higher (it’s higher right now than it was last week), it doesn’t allow the market to move quite as much – it stifles prices. That’s basically what we’re seeing here.
[Want to see what a more exciting probability distribution looks like? Go back a few weeks and look at this.]
To put some numbers to the above distribution, its mean is actually -0.09% and its median is 0.1%. That’s definitely not as appealing as last week’s 0.18% and 0.38% (c’est la vie).
So now you’re wondering…
What do we do?
Our most common recommendation in any market is “don’t do anything,” because that’s the right course of action most of the time.
If you have a fear of missing out, though, it still may be a good time to buy some stock, and if you’re already a put-seller, now would be a fine time to sell an OTM put thanks to the reduced tail risk.
Other than that, just hang in there. We’ll be back next weekend!
SqueezeMetrics figures that if you’re going to bother fretting about the market all the time, you might as well fret with some good data at hand. Want to dig even deeper into the inner workings of the market? Join the conversation at Fresh Picks.
Disclosure: I am/we are long SPY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.