Who would have thunk it – a 40 basis point sell off in the S&P 500 causes a 10% rally in the VIX. While the price action today in the broad market seems fairly orderly, it is worth noting some weakness in prior leaders. For example, the airlines did not confirm the recent highs in the S&P 500 index or the many new highs among other transport names. Despite the iShares Transportation etf (IYT) having made a new all-time high last Thursday, airline stocks like DAL & UAL that make up 6.25% of the weight topped out in early June, with DAL 11% from those highs, and UAL ~20%. The weakness is noteworthy, but could be nothing more than a rotation out of stocks perceived to have undue exposure to oil prices.
On the flip side though, the largest component of the IYT, Fedex (FDX) at 10.3%, closed at a new all time high last week, and sits 1.5% below those levels in today’s trade. Last month, FDX broke out to new highs after better than expected earnings, and the stock went up almost 10% in a straight line, gaining almost $4 billion in market cap on 4% year over year sales growth in the qtr:
In a market that seemingly makes new highs daily, there are no shortage of divergences noted on a daily basis. Underperformance within a key sector like transports is worth keeping an eye on, but a chart like FDX over the past year in many ways overpowers bearish arguments, as the stock could easily retrace half of its recent move since earnings, towards the prior breakout level (red line just about its rising 50 day moving avg in purple), and still look healthy:
In other words, the rally has been so strong that any retracement is unlikely to do much technical damage, in both FDX and the broader indices.
I guess the last point worth noting would be the spread between implied volatility (the price of options) and realized volatility (how much the underlying has actually moved) and this could be a tell for volatility to come. The one year chart of Implied Vol (blue line) vs Realized Vol (white line) in FDX shows the pick up in movement of the stock, which makes sense given the one day earnings move and the continuation to new highs, but the fact that implied vol has barely ticked up during the move shows massive levels of complacency with the stock at all time highs as other sub-sectors of the IYT are rolling over: