Understanding the VIX and Market Dynamics
The VIX spiked above 25 in the pre-market, then settled at 22.29. Many traders likely anticipated increased range and trend in the market following the pre-market news on AAPL and tariffs. They expected a stronger downtrend or even a massive reversal based on recent market behavior. The 24-hour range was 509 points, while the day session range was only 250 points in the Nasdaq futures. Despite the significant pre-market movements, the stock indexes displayed relatively compressed and controlled day session ranges.
The price action turned out to be sloppy, confined within a narrow range. The Zig Zag Count hit 10, indicating a lack of follow-through movements. We were prepared for substantial price changes, but the market remained in a tight range instead. On Wednesday, we observed a quick move lower, followed by compression and sideways price action on Thursday, with little follow-through until pre-market trading on Friday.
It seems we did not fully realize the net selling or pullbacks that we should have seen this week on daily charts. If this situation represents the extent of pullback we face amidst the current news cycle—including credit downgrades, high yields, JGB, tariffs, and AAPL—it could indicate that the market is poised for a surge to all-time highs.
Indicators of Potential Market Movement
Interestingly, some stealth QE appears to be re-emerging with the Federal Reserve's bond-buying program. Meanwhile, Bitcoin made a significant jump to all-time highs, which contrasts with the lag seen in the stock indexes.
The VIX and the end-of-day selling patterns present a complex picture for traders. The persistent end-of-day sell-offs prompted me to conduct tests on a one-minute @NQ chart based on EST. By utilizing the US STOCK Custom Session for day sessions only, I aimed to gain insights into these market dynamics.
Test Results and Strategy Insights
Here are the results from the Easylanguage code (specific results could be included if provided).
By selling at 3 PM EST/2 PM CST and covering at 4:15 PM EST/3:15 PM CST, we found that May emerged as the most profitable month in the Tradestation report. It's essential not to base our trading strategies solely on a "one-off" pattern or to adjust based on potential short-term anomalies. This pattern of dip buying to foster mid-day uptrends seems to have exacerbated the trend of end-of-day selling.
V-Reversal Performance and Market Trends
During the past week, the V-Reversal strategy had a strong performance, netting almost 40 points from one long winner and one short loser. The continuous mean reversion rally elevated our long trades. However, it distorted a good V-Reversal short as the price fell below our entry point by the end of the session (the second trade of the day).
On the downside, the One Million MNS was down -2.75% for the day, while the 250K Portfolio saw a reduction of $6,800 in live trading. Ultimately, we found ourselves around breakeven for the week.
The last hour of trading has often presented opportunities for significant upward movement. Our positioning suggested an upward trend. However, consistent last-hour selling has undermined many trades this month, as liquidity dip buyers typically push the trend higher mid-day, seeking a strong close. Yet recently, this surge has turned into extended selling instead.
Current Market Sentiment and Future Projections
The phenomenon of selling into the close can indicate a potential trend change, supplying fresh opportunities for short positions. As we near the end of May, we must consider whether "Sell in May and Go Away" will hold true this year. With Monday's upcoming holiday and NVDA poised to report earnings next week, the landscape is ripe for development.
To summarize our current market outlook: we are approaching the final week of May 2025. Notably, the entire gains within the Nasdaq 100 during 2024 took place overnight. A correction seemed inevitable for 2025, where we’ve experienced a news cycle swinging from rapid declines to subsequent rallies.
The fastest churn we’ve seen since 2001, based on the CVIX indicator, has led to a quick range compression. We expect market pricing resolution in the last week of May, particularly for our Stock Index Portfolio 18.
Hypothetical Portfolio Performances
The hypothetical results are shown below for the portfolios with $25 round turn slippage and commission:
- Stock Index Portfolio 17 (1 NQ) = -$7,245.00
- Stock Index Portfolio 17 (3 NQ) = -$21,735.00
- 50K Portfolio = -$125.00
- EMINI NQ 2 System Portfolio = +$810.00
- EMINI NQ 3 System Portfolio II = -$5,095.00
- EMINI NQ 4 System Portfolio = +$1,335.00
- EMINI NQ 5 System Portfolio = -$215.00
In conclusion, the current market conditions provide a complex landscape that requires careful navigation.