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Feb. 4, 2021, 3:15 p.m. EST

Why this signal means the S&P 500 is running out of steam, Wall Street strategist says

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By Callum Keown

There is a lot going on and it’s sending the Dow /zigman2/quotes/210598065/realtime DJIA +0.04% and S&P 500 /zigman2/quotes/210599714/realtime SPX +0.18% toward a fourth straight day of gains.

Investors are digesting a deluge of corporate earnings, as well as key weekly jobless claims data, showing the lowest number of claims since November.

Another event being keenly monitored by investors pertains to the recent GameStop /zigman2/quotes/203755179/composite GME +2.22% frenzy, which has led to wild swings for stocks, including that videogames retailer and the cinema chain AMC Entertainment /zigman2/quotes/200235402/composite AMC -2.12% , through users on Reddit’s WallStreetBets forum.

Treasury Secretary Janet Yellen is due to hold a meeting with the heads of the Securities and Exchange Commission, Federal Reserve Board, Federal Reserve Bank of New York, and Commodity Futures Trading Commission to discuss the recent volatility .

U.S. stocks climbed, with the Dow gaining 280 points and the S&P 500 up 0.7% in morning trading.

In our call of the day , Michael Kramer of Mott Capital Management said U.S. stocks may be at the top end of the range with no more room to rise.

Kramer made the call after the Cboe Volatility Index (VIX) /zigman2/quotes/210598281/delayed VIX -0.25% fell more than 10% on Wednesday, closing at 22.9. The index is a closely watched measure of expected stock market volatility.

“It is stunning to me how quickly the VIX has fallen, given the lack of a move higher the S&P 500 has seen,” he said. Kramer noted that on Nov. 3 the VIX was at 35.6 before taking 10 days to fall to 23, but this time around it has fallen from 37 to 23 in just six days. November’s VIX fall saw the S&P 500 rise more than 8% in the 10-day period, but the index has in comparison climbed just 3.3% this time. “Very different positioning in the market, I guess,” he added.

“If the VIX is already at the bottom of the range, which as we have talked about in the past, is around 21 to 23, then the S&P 500 will not have enough energy to push it [to] new highs,” Kramer said.

The S&P 500 closed 0.1% higher on Wednesday but Kramer said when broken down, it wasn’t a good day for the index, and in fact raised some concerns. “It actually wasn’t a strong day at all because the index reached 3,848 at the high, officially closing the gap from last week, and essentially turned lower as it finished at 3,830.

“The gap-fill and the reversal could be a sign of trouble depicting what likely starts a gap fill lower on the SPX back to 3,785,” he said.

The chart

This chart from the Financial Times shows that the number of vaccine doses administered globally has reached the number of confirmed COVID-19 cases worldwide.

The markets

U.S. stocks climbed in early trading following better-than-expected jobs data. futures European stocks also climbed as a number of corporate earnings sparked optimism over the recovery. Asian markets retreated overnight , however, as caution began to set in.

The buzz

Genetic testing company 23andMe is going public via a merger with Richard Branson’s special purpose acquisition (SPAC) VG Acquisition Corp , in a deal with an enterprise value of about $3.5 billion, the companies said on Thursday.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
35,756.88
+15.73 +0.04%
Volume: 321.91M
Oct. 26, 2021 5:01p
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/zigman2/quotes/210599714/realtime
US : S&P US
4,574.79
+8.31 +0.18%
Volume: 2.02B
Oct. 26, 2021 5:01p
loading...
/zigman2/quotes/203755179/composite
US : U.S.: NYSE
$ 177.84
+3.87 +2.22%
Volume: 2.18M
Oct. 26, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$13.31 billion
Rev. per Employee
$424,150
loading...
/zigman2/quotes/200235402/composite
US : U.S.: NYSE
$ 36.05
-0.78 -2.12%
Volume: 27.67M
Oct. 26, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$18.91 billion
Rev. per Employee
$43,642
loading...
/zigman2/quotes/210598281/delayed
US : Cboe Indices
15.94
-0.04 -0.25%
Volume: 0.00
Oct. 27, 2021 7:44a
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