The Market’s Two August Super Moons: Tech Earnings and the Fed

July 12, 2023 by Kevin Kelly

The equities market has some weird energy this year with two strong energy fields driving returns and sentiment. The Fed has raised rates and technology stocks have driven returns.  August historically has higher volatility (Watch the Bloomberg Clip below about Mercury in Retrograde).

Just wait for August. There are about to be the two energies of tech and the fed illuminating more information on the market.  We are about to have not one, but two moons, that are actually super moons. A second full moon is known as a ‘blue moon.’ Which is rare in occurrence – much like where we are in the market. 

How can one month handle more than one supermoon? Volatility may be making a reappearance.

The full Sturgeon Moon reaches its peak on August
Tech Earnings Force Field

Yes, the super moon will reach its peak on August 1. The AI darling Microsoft reports earnings on 7/25 while Apple reports on 08/03. Technology has been such a force in the market that the Nasdaq is doing a “special” rebalance of the Nasdaq-100 index. The Nasdaq 100 special rebalance will take place before the market open on Monday, July 24, to “address overconcentration in the index by redistributing the weights.” Notice how it is before it’s largest constituent, Microsoft, reports earnings. Nasdaq has only done a special rebalance twice before in December 1998 and May 2011.  The Nasdaq 100 index is up roughly 40% year-to-date.

So what – why care about the first super moon? Well, the Nasdaq 100’s volatility, known as the VXN, as of 7/11, was trading almost 6 points higher than the S&P 500.  It’s weird that the 30 day volatility of the VXN – at 21-  is 6 points higher than the VIX -at 15 – given that technology’s earnings should be good. Guidance should be good too. It’s tech earnings that have driven the market’s returns this year (MSFT, NVDA, META) and would be the force to drive it forward as well.  For context, the spread of VXN over VIX was at 2 points on May 24.

The volatility of the Nasdaq 100 is telling us something. Possibly that post technology earnings, volatility could increase.

The Blue Sturgeon Supermoon peaking on August 30
Jackson Hole / The Fed Force Field

The other weird energy and force field in the market is the Fed. Are we done hiking rates? The labor market does not think so and the Federal Reserve, through Jerome Powell, is adamant that they are going to stay higher for longer. This reminds me of the the Tove Lo song Habits (Stay High). “If anything, I’m restless, Yeah, I’ve been around, and I’ve seen it all […] I gotta stay high all the time,” because that song is strange and this this year’s Jackson Hole, “Structural Shifts in the Global Economy,” Aug. 24-26, could have the Fed singing, “I’m restless […] gotta stay high.” Good grief.

So what – why care about the second super moon? The Fed staying higher for longer, and possibly raising rates further could lead to higher volatility in the market that could negate the earnings strength that has driven the markets returns.

Here is something even more eerie that Abigail Doolittle told me, Mercury will be in apparent retrograde August 23 to September 14. It’s not the best thing to happen during a super moon (Watch the clip below).

The Possible Two Super Moon Trade
Option Overlay / Covered Call Strategy

I think one way to take advantage of the 6 point spread of VXN over the VIX is to own the Nasdaq 100 through the QQQ ETF.

Buy QQQ around 366.50

Sell the August 18th expiry (pre-Fed Supermoon) $370 Call for $8.00

Generates about 2% options premium and gives downside protection to $358.50.


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