The stock market closed with mixed results. The Dow Industrial Average dropped, while the S&P and NASDAQ hit new record highs. The Dow fell by 220.42 points, or 0.48%, finishing at 45,490.92. In contrast, the S&P rose by 19.43 points, or 0.30%, closing at 6,532.04, and the NASDAQ gained 6.57 points, or 0.03%, finishing at 21,886.06.

Market Influences

Major declines from key companies like Salesforce, Amazon, and Apple led to the Dow’s drop. Salesforce decreased by 3.77%, Amazon by 3.31%, and Apple by 3.23%. On the flip side, Oracle saw a remarkable rise, with shares jumping 35.95% to $328.33, boosted by strong future predictions. Although Oracle’s earnings and revenue were slightly below what the market expected, its outlook impressed investors. Other tech stocks also climbed, with Nvidia gaining 3.81%. Broadcom surged by $32.90 or 9.77%, and AMD rose by 2.39%. Overall, 21 out of 30 Dow stocks ended in the red, indicating a tough day for the index, despite the record highs for the S&P and NASDAQ. The market is sending mixed signals, with the S&P 500 and NASDAQ reaching records while the Dow declines. This gap could favor a pairs trading strategy in the upcoming weeks. We might consider buying Nasdaq 100 futures contracts and simultaneously shorting Dow futures to take advantage of this trend. Concerns about major consumer companies like Walmart, McDonald’s, and Visa raise flags for the economy. Their decline aligns with last week’s retail sales report, showing a surprising 0.2% drop in August, indicating slowing consumer spending. Purchasing puts on consumer discretionary ETFs, such as XLY, could be a strategy for potential weakness.

Index Volatility and Strategy

The market rally is heavily focused on a few AI-related stocks, evidenced by Oracle’s huge 35% increase based on future guidance alone. This narrow focus puts the indexes at risk of sudden changes. The VIX volatility index is currently around 13.5, a sign of complacency not seen since late 2024’s market fluctuations. With implied volatility so low and underlying risks present, it could be wise to seek protection. We might consider buying VIX call options or out-of-the-money puts on the QQQ ETF, offering an affordable way to hedge against a sudden downturn if these high-flying tech stocks start to lose steam. This market situation is reminiscent of what we saw in late 2023 and early 2024, when a few major tech stocks drove the indexes. That period was followed by a sharp correction in those same leading stocks. Create your live VT Markets account and start trading now.

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