Stocks Week Ahead: Volatility to Spike Amid High-Stakes Data Releases This Week

Stocks had a bizarre trading day on Friday, but as we have discussed in the past, a market on close imbalance can produce outsized moves late in the day, especially on a Friday at month-end. That is essentially what appears to have happened, with a large imbalance of about $7 billion in total to buy. This helped to push the market higher in the final minutes of trading.

It isn’t to say that markets can’t continue higher today; at the same token, it wouldn’t be surprising to see the gains given back either, especially given how much economic data is due to come this week. More importantly, it has become increasingly clear that the market is amid one giant trade, and there are signs the trade is possibly in the midst of a reversal, as measured by credit spreads, correlations, and skew. It seems that some of these are hitting historically low levels, and over the next two weeks, implied volatility will find it hard to move lower, given a job report, aoption IV tends to also track closely with credit spreads, which have been trending higher over the past few weeks.

A push in the USD/CAD back above 1.385 would be a significant signal for risk-off overall, and a push higher in the USD/CAD would make sense if credit spreads and IV rise.For all the hype around the equity market, the S&P 500 has gone nowhere since mid-March and is basically in the middle of the Rising Broadening Wedge we have been tracking now for a few weeks. Meanwhile, Friday’s rally only returned the index to resistance and nearly completed a 61.8% retracement.

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