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Stocks have drifted lower this week amid a lack of action by the Fed and as investors appeared to position themselves for the possibility of Great Britain exiting the eurozone. The unprecedented slaughter at an Orlando club by an American-born jihadist has also frayed nerves and undercut confidence.
More significant than the action in stocks, though, is that of the CBOE Volatility Index (NYSEARCA:VIX) — which has been surprisingly elevated.
For instance, on Monday it jumped 23.1% to a new four-month high even though the underlying benchmark index only fell 0.8%. Normally when the VIX jumps by that much, the S&P 500 will have fallen by at least 2.5%, so there was a lot of stunned wonderment and confusion among investors as to what that divergence means.
Some experts suspect that it means the major indexes will sink sharply in the days ahead to catch up to where volatility has already gone. But, to be honest, it has never worked that way before, so far as I can tell, and it seems doubtful it will happen now.
In other words, it’s weird and rare for the financial manifestation of fear of a market collapse to precede an actual market collapse. What tends to happen instead is that the extreme bouts of fear are typically proven to be the wrong or dumb-money move — and, in subsequent days, reverse lower to catch up with the more blasé market.
With that in mind, it’s a good time to scoop up shares of Domino’s Pizza, Inc. (NYSE:DPZ). Domino’s has been one of the best stocks of the current bull market, rising 2,800% since 2009. It’s funny how traders spend so much time studying difficult topics in technology or biotech, and all that time a pizza delivery service is outperforming everything else. DPZ shares have not come into harbor very often but are doing so now.
Buy DPZ at $126.50 limit, good till canceled.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments. Follow him on Twitter for his latest take on markets and innovation.
