U.S. Stocks Flat, Reddit Volatility Subsides

For the moment, the highly-publicized Reddit traders appear to have retreated (or taken profits) from the U.S stock market. Over the past week, this group has garnered extensive media coverage for its assault on habitual hedge-fund shorting operations. Now, conditions have largely returned to normal. With only a few hours left in the Wall Street session, the DJIA DOW (-4), S&P 500 SPX (+14), and NASDAQ (+71) are all near flat.

Today’s economic calendar featured a collection of peripheral metrics. Here are two of the highlights:

Event                                                                             Actual                     Projected           Previous

ADP Employment Change (Jan.)                                174K                           49K                      -78K

ISM Non-Manufacturing Business Activity (Jan.)     59.9                            57.3                      60.5

Both of these reports suggest that 2021 is off-and-running in the right direction. U.S. employment and services have improved, suggesting that a broad-based COVID-19 economic recovery may develop throughout the year.

On the price action front, the CBOE Volatility Index (VIX) has fallen beneath 24.00, suggesting relatively “normal” trading conditions. By contrast, last Friday’s epic rally in GameStop unhinged markets, prompting a 36.33 VIX reading. Wall Street is returning to business-as-usual after the fireworks involving Reddit, GameStop (GME), and AMC (AMC) have subsided.

Reddit Traders Taking A Break, U.S. Markets Flat

It has been a solid week for March E-mini S&P 500 futures. Prices are holding in bullish territory, just under all-time highs.

Here are two key levels to watch for the remainder of the week:

• Resistance(1): Double-Top, 3859.75-3862.25
• Support(1): 38% Current Wave, 3615.50

Bottom Line: The events of the past seven days with Reddit traders short-squeezing hedge fund Melvin Capital have sparked voracious debate. On one hand, lawmakers are calling for new regulations designed to limit such events from ever taking place. Conversely, free-market advocates view the action in Gamestop and AMC to be natural products of price discovery. Unfortunately for retail players, when hedge funds lose big, regulation isn’t far behind. I expect the newly-Democratic U.S. Congress to formally address the alleged Reddit “market manipulation” in the coming months.

ABOUT THE AUTHOR See More

Shain Vernier

US Analyst

Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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