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Chart Advisor: Saga Continues

Investopedia

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Investopedia
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Friday, January 29, 2021

1/ Investors show heightened sense of fear 

2/ All eyes on GameStop shares 

3Earnings aftermath 

4/ The bottom line

1/ Investors Show Heightened Sense of Fear 

Earnings season continues forward even as the r/wallstreetbets storyline dominates the headlines. The nervousness shown by investors concerning the fallout from the GameStop (GMEshort squeeze, brought State Street’s S&P 500 Index ETF (SPY) to close at a loss for the month. As the chart below illustrates, the selling in SPY was also reflected in elevated levels of the Cboe Volatility Index (VIX) and Barclay’s iPath VIX Mid-Term Futures ETN (VXZ). 

It is interesting to note that the VIX closed lower than it opened today, even though the markets did the same. This would normally be a bullish indication, but in the context of current investor anxiety, it may not be. This is especially true considering that VXZ closed closer to its high for the day going into the last hour of trading for the week.

2/ All Eyes on GameStop Shares 

GME shares ranged above $400 today to below $300. As the chart below displays in the upper left panel, the volume of trading has significantly declined since its peak over a week ago. This may be an important indication that most of the institutional money stuck in a short position has found its way out. Alternatively, the institutions at risk from such positions may have been able to render them inconsequential by various kinds of hedging actions they might have taken. 

The lower left panel shows a 5-minute chart of today’s trading and shows at which price the highest volume of trading occurred. The price happened to close just above this line, a possible indication of support at the end of the session. Meanwhile, the 30-minute chart shows an unusual pattern taking shape. The so-called diamond pattern (a combination of a broadening formation and an adjacent symmetrical triangle) is a rare chart formation that can have explosive effects.  

As noted by author Thomas Bulkowski, this formation tends to break opposite to the way it began the pattern. Since the price action before this pattern included an upward trend and a strong gap up, the author’s suggestion is that the stock would leave the pattern by heading lower in dramatic fashion. Yet the price action closed above the pattern lines suggesting a break to the upside. 

3/ Earnings Aftermath 

Chart watchers who happened to be observing the last hour of trading today may have found it interesting to see the way major stocks went down going into the close, even as GME went higher. This was particularly true for the three stocks shown in the chart below, Microsoft (MSFT), Apple (AAPL) and Tesla (TSLA).  

These high-profile tech companies all released some variation of good news. Tesla’s results were mixed, but the other two companies beat both their profit and their sales target. That didn’t stop them from sliding lower through today’s session.  Luckily, they still ended January higher.

4/ The Bottom Line 

As market participants absorb news about GameStop’s impact on all other shares, the VIX made a new high and is poised to continue higher. Trading volume for GME shares was lower today than the last few days, a signal that the saga’s end may not be too far away.  

Originally Published on January 29, 2021

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