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investors wait on the Fed next it's a Fed decision now next week and our next guest says volatility is back and clients are using it to their advantage and joining us now is Joe Missola, Schwab head of trading and derivative strategist. Joe, always good to see you. Josh, thanks for having me. So you say, uh, Joe, markets are indicating that now maybe may be a time to proceed with caution. What do you mean by that?

Now we saw a little bit of a pickup in volatility last week, you know, the VIX trading above 20, pulled back a bit, but you know, some of the things that I kind of keep an eye on would be things like skew, right? So, you know, puts over calls where we started to see some rotation. I think you're starting to see that on the institutional side where you're starting to see some of that downside buying and it's actually kind of made its way over into the retail side, which I'm a little bit more familiar with, you know, being at Charles Schwab. We're starting to see that as well.

And so when you look at, um, support levels, I know that's something you're looking at. Um, what levels are you looking at and how is that sort of backed up by what you're seeing from retail trades?

Yes. So, you know, we've been bouncing around that kind of 5400 level. I think if we get a pull back from there, I'd be looking at around that 50% Fibonacci retracement, kind of put us down around the 53. I think 5280 is that level that I marked down. So just something that I think from a perspective of a little bit more psychology in terms of the market because I think you have to remember there's a lot of it's built into the sentiment and as we start breaking down below those levels, you might start seeing a little bit less of the dip buyers stepping back in. We got a great amount of dip buying after the August. I noticed that, right. I thought that was interesting.

Yeah, and it carried through for a couple weeks, but then kind of by the end of the month, a little bit of profit taking, some of that dissipated. You know, if you look at some of the tech names, you got moves in Nvidia from, you know, $90 all the way back up to 120. People took some profits off the table. It's okay. Yeah.

And when you mention the dip buying, um, Joe, you have line of sight to what they were buying?

Yeah, absolutely. So the top three stocks that we saw purchased in the course of May through our stats report would have been Nvidia being number one, Amazon number two, and then the third one, which was I thought was really interesting, kind of given the pull back that it had was Intel. So you know, I'm they moved into Intel. They moved into Intel. I mean, look, it pulled down 30%, right, you know, after earnings and you know, the the I don't think it was the forecast was very strong, but you know, I think sometimes you just see some dip buying, you see some people looking for some opportunities and that's probably what we saw.

I don't know if they got the opportunity though. At least not yet. We'll see how that works out. But on a similar front, people were buying energy stocks. Um, and energy's had a little bit of a tough time.

Yeah. That one was hard for me to kind of wrap my head around as well too. You know, when we look at the two sectors that were purchased, discretionary, so consumer discretionary, I think a lot of that had to do with the Amazon purchasing that we saw throughout the course of the month, but then energy as well and once again that might just be clients looking for, you know, some opportunities just because of the pullback that we've seen in crude. Not to say that that won't continue, but at least for where we're at right now, that's what we're seeing.

Give any line of sight, uh, Joe, besides, um, besides stocks, any moves in commodities that pique your interest?

Yeah, uh, you know, maybe not commodities, but fixed income, I think was important because we did see a big rotation into that and that was like I talked about at the end of the month. We started to see some of that buying momentum in equities fade a bit and that really rotated into fixed income. I don't know whether or not they're, you know, people are trying to kind of front run the Fed in next week's meeting. I think that's a possibility. Maybe they're trying to buy it before yields go down further. That, you know, that to me was probably that would be my guess, but in terms of other commodities, haven't seen a whole lot of buying that's kind of precluded any big moves there.

One thing we were talking about earlier with another guest was cross asset volatility, which has been ticking up. I mean, the VIX spiked, right, and then came back down. That spike happened there early August, but now it's creeping up again. Dollar volatility creeping up, uh, fixed income volatility creeping up, uh, creeping up. What do you make of that move?

Well, I mean, just look what's happening in bonds. I mean, you've seen a real big move in the bond market. You've seen the yields kind of pull back pretty dramatically and when you see that increase in in fixed income volatility a lot of times it spills over into the equity markets. Not always, but that's kind of been the case going all the way back to March of 23, right? When you had the regional bank crisis, we saw a lot of that volatility from the fixed income market. That's been one of the indicators I've been following for a while is the move index and how that's kind of predicated a move within the VIX. We're starting to see that again right now.

Interesting. What what about for those who aren't familiar with the Schwab trading activity index, explain for viewers what that is and what it's telling you right now.

Yeah, so what's really cool about that is it really gives us insight into the behaviors of our clients. So we're not we're not asking them how they feel. We actually do have a study that we do with that as well, but we look at 32 million accounts and we have the ability to kind of take a cross section of that and say, okay, what was your activity throughout the course of the month? If we're starting to see more kind of higher beta names being purchased, that's what pushes it up. So not only does it look at buying activity, but it kind of looks at, you know, what they're buying. I told you that the three stocks that we saw the greatest amount of purchases in, but we actually saw it come down a little bit in terms of the overall index itself and the reason that that is is because there was a rotation out of some of those higher beta names into fixed income. So fixed income, as long as they buy that, that can still move it up, but it won't move it up as quickly because of the lower beta that it has.

Do do you tend to see when are there levels that you watch that then can presage other moves either in the market or in future retail activity?

Yeah, so the range that we've really seen, uh, really since the the genesis, the existence of of this goes all the way back to the TD Ameritrade days when they used something very similar. The range is about 35 to 75 is I would say a typical range. We're kind of smack dab in the middle around 53 right now. Uh, where we saw the highest ticks would have been around 2021 and that would have pushed it in that 70 level. Gets to that level. I consider it probably a little bit of a FOMO and something to kind of keep an eye on. Now I will say this though, um, when you kind of recalibrate it and if you look at that as an outlier, I would probably be looking somewhere in that 60 range right now is kind of the new range.

Got you. All right, we'll be watching it. Thanks for coming in, Joe. I appreciate it.