Summary

The article discusses recent market volatility, strategies for benefiting from it, and speculates on the market's direction amidst the omicron variant and inflation concerns.

Abstract

The market has experienced significant volatility recently, with daily swings presenting opportunities for savvy investors. The article highlights that while the overall trend has been downward since Thanksgiving, with notable drops after hours, there are ways to capitalize on this instability. It suggests considering ETFs like $VXX and$ SPXU, which are designed to perform well in volatile or down markets, with SPXU offering triple leverage against the SPY. The piece also notes that tech-related companies have been particularly hard-hit, with many stocks in Cathie Wood's ARK Innovation fund entering a bear market. The uncertainty surrounding the omicron variant and inflation is expected to keep the market volatile until Christmas, with potential for further declines that could present buying opportunities. The article emphasizes that clarity on the omicron variant's impact and policy responses by the new year may lead to less uncertainty and a market rebound.

Opinions

The author believes that market volatility can be advantageous for informed and agile investors.
Timing the market is challenging but can be lucrative if done correctly.
ETFs like $VXX and$ SPXU are recommended for taking advantage of market downturns and volatility.
The recent performance of tech-related stocks suggests that some may be oversold and could represent good buying opportunities.
The Federal Reserve's response to the omicron variant and inflation could introduce more volatility but may also lead to a market recovery once the situation becomes clearer.
The article implies that the market may see more down days before Christmas but could improve after gaining better insight into the omicron variant's effects and subsequent policy decisions.

How Long Will the Market Volatility Last?

And how you can benefit

The market is currently a gold mine for those who have the time and knowledge to navigate it.

Over the past week, it has had swings almost every day. They may not be enormous amounts, but if you guess the right way and pick the right trades, you could be doing very well.

Daily Change in the Market

The market has been on a roller coaster recently. Here are the past days for a visual.

Looks like it would be a pretty fun amusement ride.

But let's dive into the numbers. Since Thanksgiving, the market ($SPY) has had four down days and two up days. But what I found most interesting was that most of the change occurred in off-hours — either after the market closed or before it opened in the morning.

Looking at just the daily change, nothing looks too crazy (besides the 2.41% drop on December 1st). But take a closer look at the price change from 11/24 close and 11/26 open. That’s a sizeable change, -1.51% to be exact.

That’s why the “Close over Close Change” column gives the best look at what’s actually been happening. From 11/24 close to 11/26 close, the market was down 2.23%, a huge difference from the 0.73% that was lost on 11/26.

The market has been volatile and down lately. Below is the volume of the SPY each day, going back to the beginning of the year. The recent days have seen a spike in volume

How to Benefit

Timing the market is extremely difficult. But if you can do it, you can make good money. While the $SPY being down 2% is notable, that won’t make you rich if you guess that correctly.

Luckily there are options built just for these types of situations.

Way back in May I wrote an article on how to navigate a down or volatile market. But I’ll spare you the time and summarize it here. In situations like this past week, look at ETFs like $VXX and $SPXU.

VXX is a volatility ETF and SPXU bets against SPY.

There are plenty of other ETFs that do these as well, but VXX is what I’m familiar with and SPXU is triple levered! Meaning whatever SPY does in one day, SPXU will do the opposite multiplied by three.

Below are the daily changes for SPXU.

Five or six percent swings in one day are more exciting than the two percent the SPY offers.

But even better, VXX has swings even larger.

Not everyone wants this much volatility. And these gains aren’t often for these two mentioned stocks. But it doesn’t hurt to know of some options when the overall market is acting this way.

Notable Names That Had a Tough Week

Friday morning (12/3) CNBC had an article showing all but two stocks in Cathie Wood’s innovation fund are in a bear market (some of the holdings are getting slaughtered off their 52-week highs). In short, companies that have been getting rewarded the past year and a half, have been getting slammed recently.

But it made me look into other tech-related companies that have suffered recently. Below are some companies that have had a rough week. Also included is their percent change from last Friday's close (11/26) to this Friday’s close (12/3). Some might be good buying opportunities, some might still have a long way to fall.

Tesla, -6.2%
Adobe, -6.9%
Netflix, -9.5%
AMD, -7.0%
Moderna, -7.0%
Twitter, -10.6%

Where Is the Market Headed?

The question we all wish we had the answer to.

It’s hard to predict exactly what will happen in the market because of the uncertainty from the omicron virus. Markets don't like uncertainty.

I would expect the market to remain volatile until Christmas. Besides the variant, another factor at play in the market is the Federal Reserve’s actions. The Fed has been very transparent over the entire pandemic on what they plan to do. This is good for the market, as, again, uncertainty is not appreciated.

With the omicron variant stretching the Fed one way and high inflation stretching it another way, the Fed may have to take swift action, and not be able to provide as much transparent guidance as before.

Besides the volatility, I don’t expect the market to have gains from now to Christmas. A few more down days could be in store, which can offer good buying opportunities. I expect by New Year’s we will have a better feel for the omicron variants impact — how deadly it is and what actions, if any, policymakers will take. After this, I suspect there will be less uncertainty in the market and brighter days ahead.

The above references an opinion and is for information purposes only. It is not investment advice.