Alert

What is IV rank and how do options traders use it?
tastytrade logo
what goes up must come down young woman on a roller coaster

Jun 2, 2022

S&P 500, Dow Jones, Nasdaq 100 in Recovery Mode, for Now

By:Paul Robinson

S&P 500, DOW JONES, NASDAQ 100 RECOVERY SET TO CONTINUE

The stock market is bouncing, for now, and is anticipated to continue to hold a modest bid in the short-term. However, the outlook more broadly speaking still looks quite bearish in the second half of the year.

The S&P 500 showed some real power off the May low and in the past couple of sessions it has dipped a bit, which is to be expected. The dip could offer would-be longs an opportunity to continue playing a bounce. But only a bounce.

The rally isn’t expected to go much past 4300, which means the large chunk of the bounce may be over in terms of price. But there may be some time burnt between now and where the S&P ends up before another leg lower develops.

Recovery bounces in an ongoing bear sequence tend to last between 4 to 8 weeks. Right now we are at about 2 weeks, so there appears to be a little time on the market’s side.

The price action to date has been quite bearish for stocks, yet we have not seen any real kind of capitulation or fear by market participants. Sure the VIX has risen a few times into the high 30s, but it appears that is becoming the high-end of a new normal in vol.

The lack of a significant spike in volatility suggests the Pavlov response by the market to ‘buy-the-dip’ is still well intact despite how far we have come off the highs. What we have typically seen over the years during this bull market is that when the market gets 10-20%+ off the highs fear rises sharply (VIX spikes) and a bottom is put in. What we are seeing now marks a change in behavior. From where I sit it is a very bearish one at that.

The bottom line is that fear tends to rise in-line or disproportionately compared to the depth of the decline and marks a wash-out low. This does not seem to be the case this go around. The thinking at this time is that until we see the VIX spike to 50,60 or even higher on waterfall type price action the downward trajectory for stocks will continue.

S&P 500 DAILY CHART

SP-500-Dow-Jones-Nasdaq-100-in-Recovery-Mode-for-Now-PRtech_body_SPX_2022-06-02_08-56-57.png.full.png
S&P 500 Chart by TradingView

VIX DAILY CHART

SP-500-Dow-Jones-Nasdaq-100-in-Recovery-Mode-for-Now-PRtech_body_VIX_2022-06-02_08-56-23.png.full.png

It bears keeping a close eye on the Nasdaq 100 while all this plays out. It has been the leader on the way up and since the beginning of the year the leader on the way down. It’s looking like the NDX is going to continue that trend. 

NASDAQ 100 DAILY CHART

SP-500-Dow-Jones-Nasdaq-100-in-Recovery-Mode-for-Now-PRtech_body_NDX_2022-06-02_08-58-12.png.full.png
Nasdaq 100 Chart by TradingView

The Dow Jones is a bit stronger, as it has been, and this is likely to continue. But it too will get hit hard with the market if we are to see a broad sell-off develop at some point. Look for the 34k area to be about as high as the Dow can get if the bearish outlook is to hold up.

DOW JONES DAILY CHART

SP-500-Dow-Jones-Nasdaq-100-in-Recovery-Mode-for-Now-PRtech_body_DJI_2022-06-02_08-57-37.png.full.png
Dow Jones Chart by TradingView

Resources for Forex Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com. 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.