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Volatility Is Bound to Come Back, Right?

Just because we've been in such a low-volatility period doesn't mean we always will.

The Market

I saw a quote today on the market that I must share with you. Byron Wein, a very well-respected elder statesman/strategist in the markets, said that "low volatility is here to stay."

Perhaps the quote was taken out of context, but when I see comments like that, the first thing I think is that this is the sort of comment you do not see when the VIX is at 20 or 30 or 40, but rather when it has been hovering at 10 for quite some time. And then I think, how can you know that? Just because we've been in such a low- volatility period doesn't mean we always will.

Then I see the put/call ratios for today. For the second day in a row, the put/call ratio for ETFs was under 100%. That happened in mid-September and we went into this chop mode for the S&P 500. But apparently there are others who think the way Wein does because they are betting heavily on more upside.

Compare that to the past week when the put/call ratio for the VIX has been 20% or less three times. Those are bets on a higher VIX, which presumably means a lower stock market. In addition, the CNN Fear and Greed Indicator is back at 79%. So today was a shift.

The utilities had an interesting day because they tried to follow the bonds down and reversed to the upside. Resistance on the Utilities Select Sector Fund (XLU) - Get Free Report is at $53.50, but that reversal is important to watch because it has a bearing on the bonds. I would point out that the iShares 20+ Year Treasury Bond ETF (TLT) - Get Free Report came right into my target zone of $123.50-$124 today and closed at the high of the day.

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Finally, the ratio of the Russell 2000 ETF (IWM) - Get Free Report to the PowerShares QQQ (QQQ:Nasdaq) has been surging since the late-August lows. Curiously, though, it has yet to achieve the same level of outperformance that we saw in June. That being said, this level (call it the red line) has been the point of resistance on this trade all year.

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Aside from that, breadth remains fine but I don't think I would join Byron Wein by thinking volatility is history. My guess is we get some in October.

New Ideas

I have written up Google/Alphabet (GOOGL:Nasdaq) several times with the consideration that as long as it stayed over $920 it was OK to own and if it broke under $920 then I would buy it at $890. But it has since not only held $920, it has broken out over $950. Yet curiously I see so little chatter on it. As long as it stays over $940, I see no reason it can't attempt to fill that gap overhead near $990.

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I was asked why I am so lukewarm on the VanEck Vectors Gold Miners ETF (GDX) - Get Free Report. Look at it: It has no life. If it can go sideways and at least build a small base, then I might have more confidence that it can do more than just a rally. I think there will be a rally attempt from this $23 area, but each attempt has formed a lower high for the last month, which means it needs to prove itself by building a base or eating through resistance.

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Today's Indicator

The 10-day moving average of the equity put/call ratio is rising but is mostly in the middle of nowhere.

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Q&A

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I am inclined to like Steel Dynamics (STLD:Nasdaq), especially if it can rally to $35 and then pull back to $34-$34.50, because that would set up a nice pattern to help it eat through all the resistance overhead -- and there is plenty. The big base in the steel area is Olympic Steel (ZEUS:Nasdaq) with a terrific ticker symbol! It has already had the move up and back down for the retest (as I have drawn in using blue on the STLD chart). Sure, ZEUS is extended, but it measures to that old high near $24.

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Clorox (CLX) - Get Free Report has a big top in place. I was asked if there is any way I might like it. Well, if it rallies to about $132 and then pulls back and can't break this recent low -- in other words, if it forms a W, akin to what it did in May. Barring that, a break of that $127 area and it measures to $120. On a panic to $120, I might like it because by then I'm sure we'd hear how you "just can't own defensive names."

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F5 Networks (FFIV:Nasdaq) is coming along in its attempt to build a base. I think $125-$126 will be resistance the first time up because of the downtrend line and the gap fill. It would then have resistance all the way to $132 as well. In general, I am a fan as long as it stays over $120 (green line).

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