The stock market, as gauged by an index like the S&P 500, had an uptick in volatility following the U.S. election. That volatility is expected to continue in the short-term. If the S&P 500 is likely to see another sharp price move in the next couple weeks, many other stocks will as well.
The SPDR S&P 500 ETF (SPY) surged on Nov. 9, erasing the price drop seen at the start of the month. On Nov. 10 the benchmark stock ETF stabilized, and Nov. 11 formed an inside day. While the ETF could stay inside this two-day price range between $218.31 and $215.22 for a few a more days, the sideways movement is unlikely to last for long. A breakout of the range is likely to produce another sizeable move. That breakout could occur to the upside or downside, as there are compelling arguments on both sides. Based on the long-term outlook, the S&P is still in an uptrend, but that would still be the case even with a short-term drop. If the price starts rallying again, watch for a sharp rise in the $225 area based on recent momentum. If the price drops below $215, it may be setting up for a fall back into the $209 region, or potentially lower. The trade is meant to capture short-term momentum related to uncertainty and high emotions among investors.
Cisco Systems, Inc. (CSCO) has been hovering just below the 52-week high of $31.95, and since Nov. 7 has consolidated in an expanding range between $30.61 and $31.76. This consolidation is part of a larger range (between $31.95 and $29.63) in place since mid-July. A breakout of the consolidation could signal the start of another wave higher, pushing the price up to the $34 region. A drop below $30.50 means the price could re-test the Nov. 4 intraday low of $29.63. If the price continues below $29.63, the next downside target is $28.
Analog Devices, Inc. (ADI) is trading near its 2016 high ($66.91), and just below the 2015 high of $68.97. Nov. 9 and 10 were wide-ranging days in the stock, covering a distance of $62.50 to $65.97. The price could continue to move inside that range for a few days, but the price is expected to move outside of that range relatively quickly. An upside breakout will create what is likely to be a sharp advance into the $72 to $73 region. A drop below $62.50 could signal a drop back toward short-term support between $60 and $59. A breach of that support could push the price to the next support level near $53.
The Bottom Line
Volatility is expected to continue in the short-term (and potentially the longer-term) as new details are revealed about the plans of the President-elect. That volatility can be traded via a stock market ETF like the SPDR S&P 500, or via individual stocks that have had recent patterns similar to the S&P 500. “Whipsaw” movements are common in high volatility and high emotion times. A whipsaw is when the price moves one direction but then makes a fast reversal in the other direction. Utilize stop loss orders to control risk on each swing trade.
Disclosure: The author doesn’t have positions in the ETFs or stocks mentioned.
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