Now stocks like rate hikes

Andrew Giovinazzi

Yo Pit Crazies,

We saw another 3% rally in the S&P 500 on Friday.

Traders took the comments like a duck takes to water. The Fed will raise only what they need to but the numbers look ok.

J-Pow even told the US government to stop spending so much money!

Sadly, there was very little VIX response.

Which is not great for the rally.

Let’s see why.

(But first, make sure you join Griff and I in Power Gains – access closes tonight … forever!)

VIX Is Still Not Back to Pre-Hike Levels

This is a symptom of the market we have since the Russians invaded Ukraine.

The world is changing very fast and VIX has stayed high because the moves in SPX are averaging 2% a day for the last month.

That is roughly a 32% VIX. Ever since quantitative tightening has commenced and the new 75 bps hike, VIX and SPX has been on a roller coaster.

VIX one-month chart with one-day candles; SPX one-day chart with one-day candles.

In the chart above, SPX has not reclaimed the big gap it made weeks ago and, save for a few days last week, realized vol is still crazy high.

SPX implied vol per strike went up in the 30 day cycle as the graphic below shows.

3,900 strike in SPX July 25 series.

I would need to see that 3,900 strike vol start to fade before I believe this rally.

That could happen Monday, but I still need to see it. I saw the Vol Skew pumping up the upside options on Tuesday in the Pro Small Group Class. That video is here.

Since this volatility is here to stay, check out my list of oil stocks with fat dividends to ride out this crazy market …

Oil Stocks Drop to Pre-Invasion Levels

The easiest way to see this is with the SPDR Select Energy ETF (Ticker: XLE).

The big oil companies have sold off to a level where traders think oil demand will be in the basement.

The valuations and dividends are compelling here. A short list:

Petrobras SA (TIcker: PBR) will pay over 10% in divs for 2022. And is a perennial take out target for the Brazilian government.
Energy Transfer Partners LP (Ticker: ET) yields 8%. The current administration is not greenlighting any domestic pipelines.
Kinder Morgan Inc. (Ticker: KMI) yields 6.7% and is one of the best run properties in the USA.
Occidental Petroleum Corp (Ticker: OXY ) yields 1% and is a Berkshire Hathaway holding.
Exxonmobil Corp (Ticker: XOM) yields 4% and is in the top 10 for market cap in the S&P 500.
ConocoPhillips Corp (Ticker: COP) yields 3% and is heavy into nat gas which, courtesy of the Russians, is becoming more valuable by the day.