Trade of the week: long VIX
With five of the remaining ‘magnificent seven’ US technology stocks - 30% of the S&P 500 – to report this week amid monetary policy meetings by the Fed, BoE as well as US Non-Farm Payrolls, a spike in volatility may well be seen.
This is why we would like to go long the VIX index with a stop loss below its recent lows at 13.74 and an upside target at 16.86 or above.
(AI Video Summary)
Last week's S&P 500 trade outcome
In this week's "trade of the week" video, Axel Rudolph first talks about a recent trade recommendation that turned out to be profitable. He advised people to "go long" on the S&P 500, which means he believed the stock market would go up. Even though the market didn't have the expected slight drop, it actually kept rising. As a result, those who followed the recommendation made about 70 points in profit. He acknowledges that some investors are hesitant to buy when the market is at record highs, but he emphasises the importance of following the trend. In the past 13 weeks, the S&P 500 has gone up 12 times. This suggests that when the market is reaching new all-time highs, it's more likely to keep going up rather than reverse.
This week's trading opportunity
Looking ahead, Rudolph mentions that five big technology companies will be announcing their earnings this week. These companies are Alphabet, Amazon, Apple, Meta, and Microsoft. Together, they make up about 30% of the S&P 500 index. When these companies report their earnings, it usually brings more volatility to the market. Volatility means that the market becomes more unpredictable and can have bigger swings. Taking all this into account, Rudolph recommends a new trade of the week. He suggests buying the volatility index (VIX).
Rudolph believes that the S&P 500 will become more volatile due to the earnings reports of the big tech companies and upcoming meetings by the Federal Reserve and the Bank of England. He also mentions that there will be new employment data released later in the week. To take advantage of this predicted volatility, the recommendation is to "go long" on the VIX when it's around the current level of 1463. "Going long" means to buy something with the hope that its value will go up. He also suggests setting a stop loss, which is a pre-determined price at which you would sell to limit your losses. In this case, the stop loss should be set below recent lows at about 1374. Rudolph believes that if things go well, the trade could reach a target of at least 1686, which is the current position of the 200-day simple moving average.
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