Can markets continue going up? - Trading Journal (11.1.20)

I believe the VIX is giving traders hints as to what will happen come election and after in the markets. I plan to position accordingly right before the elections and quite interesting it may not be what you expect as I have a short term bullish take of the markets right after the elections.

Implied Volatility is way up and when looking at option premiums in SPY it is up every expiration date up to year's end, IV closer to 40% across the board. On top of that the spot VIX is actually much higher than IV, so to me it appears there is more hedges put on than people need. I think either markets are flat or go up after the elections. Too many people expecting it to crash just based on current IV.

The put to call ratio in index on weekly chart is dropping from an all time high but still average higher than normal. This confirms the high IV is due to more demand for puts. The put to call ratio in equities also recently went up to a high.

Then there is the percentage of Russell 2000 stocks that are above their 20SMA. Oddly it is much closer to 20% which is near a historic low. Chart below.

No surprise that the rally in markets have mostly been lopsided to mostly tech but since tech has started its decline last week in a big way one would have to say that there may not be much more left to drop in the prices at current levels since majority of stocks are below their 20 SMA. Not impossible but odds are not in favor of the bears.

Lastly when taking a physiological approach one would easily assume that the outcome of the election and recent events in Covid would have strong negative effects on the markets. Yet reminder the markets had a significant drop in March but rallied. If there were short positions along that rally that have yet to cover there will be traders willing to cover to limit damage there too, hence difficult if not impossible for markets to drop big as there simple too many traders buying back their shorts.

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