If you own an S&P 500 index fund, it probably feels like you’ve been running in place since August.
You have. The S&P closed at 7,723 on August 5, and right before Thursday’s drop, it closed at 7,757. That’s a whopping $30.
But a lot was going on under the hood. From its August high to its October low, the Dow’s ETF dropped about 8%, and over almost the same stretch, the QQQ climbed more than 6%.
Money was leaving the Dow and piling into tech.
This week, that started to flip. If you know where the money goes next, you can be positioned before Monday’s open, and there’s a weekend pattern I’m watching that’ll tell you a lot about how Monday goes.
Everything Is Selling But Chips
Andrew Giovinazzi, our head of option trading, tracked it with the funds that follow each index.
The Dow’s ETF, the Diamonds (DIA), topped out at $546.75 on August 5 and bottomed a little above $500 on October 1. Over the same stretch, the Nasdaq-100 fund, the QQQ, ran from $717 to a peak of $762.86.
Thursday, that started to flip.
Tech had an ugly day, but most stocks didn’t have such a bad day, and the equal-weight S&P, where every stock counts the same, finished up.
Today, everything is selling but chips.
As of 2:25 p.m. ET, the Dow was down 585 points, or 1.1%, and the S&P 500 was down 0.4%. The Nasdaq-100 was green.
The S&P is sitting at 7,632, right on top of last Friday’s panic low of 7,631.77. A break below that and 7,617, and it’s off to the races.
Money Is Running To Bonds
Money is leaving chips and going for safety into bonds. The drop in chips that started October 6 lines up with the bottom in bonds on October 7, and the run we’ve had since.
When investors buy bonds, prices rise and yields fall. The 10-year Treasury yield is now below 5%, and the 30-year is approaching 5.25%.
My take is that near term, until the election, the bottom is in for bonds. After the election, I think things change. Until then, I’m looking for the 10-year to get to 4.85% and the 30-year to break below 5.25%.
Andrew put the bigger picture simply.
The market has two big demanders of capital right now, Uncle Sam and the AI build-out. With rates coming back down, the stocks everybody ignored when rates were rising are coming back, and Big Tech is in what he calls the “show-me-the-money” phase.
What The Best Traders Are Doing
I asked Andrew what the top 1% of traders are doing right now. “You’re buying the stocks that the market has ignored, and you’re buying a little volatility,” he said. Buying volatility means owning options, which get more valuable when the market moves hard.
He’s also out of almost all his oil stocks, which were one of his largest holdings. “If I’ve never seen oil stocks here, I think I’ll sell some,” he said.
Then there’s Monday.
The old pattern was a bad Thursday, a worse Friday, and then everybody dumped on Monday after a scary weekend.
Lately, everybody looks over the weekend and says, “Maybe it’s time to buy stocks,” and they come in and buy. I don’t know if that happens again, but look out for that pattern.
Andrew spent this week teaching how to use options to trade the last quarter of the year, including how to spot market tops and bottoms. You can still catch all four sessions.
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Your only option,
Mark Sebastian