Analysis: MSFT

Bob Lang discusses the technical landscape of Tuesday's markets, what to listen for in Jerome Powell's testimony, and the chart of Microsoft (MSFT) .

KATHERINE ROSS: Good morning, Action Alerts Plus members. It is Tuesday, November 30. I'm Katherine Ross, and I'm joined by Bob Lang. Chris Versace does have the morning off today. We're going to be talking about Powell's testimony, the markets, and Microsoft's chart. And as a reminder, we do have the monthly call tomorrow at noon. So we're going to keep this short and tight so we can get traveling to New York City for you all.

Bob let's kick it off with the market. We are off to a bit of a rocky start, and the negative focus is back on omicron. Obviously, Bob, there's a lot of unknowns here, so I don't want to play the speculation game until scientists themselves have the data. So we're going to specifically talk about Powell here in a minute. But before he gets that, what are you watching in the markets?

BOB LANG: Well, you said the right operative word there, Katherine. It's unknown. And volatility starts to rise when there's a lot of uncertainty and a lot of unknowns in the markets, things that can affect markets, that affect the economy, and affect profits.

So we saw a big rise in volatility on Friday, which we talked about. It was 54% increase in VIX. It was an extraordinarily strong move in volatility. The fact that we had lighter markets was certainly a reason for that. But yesterday we saw the volatility plunge. And then today it's coming back a little bit here.

And I think as some stories continue to come out about omicron, omicron I guess it's called, more different stories start coming out, where it creates a lot more doubt, a lot more uncertainty and fear. And what we know about this market is people shoot first, ask questions later, meaning they will start selling before they really know all the answers. Because listen, even the markets are up already this year. Why give away some of those profits if you can book them before everybody else does?

So I do think that these sort of events, Katherine, offer some unbelievable opportunities in markets here. Because if you can just keep steady, and play it with a steady hand, and just understand what it's all about, that all these moves and short gyrations are in the short term, and not over the long term.

So that certainly-- March. 2020 proved that out, because the markets plunged and then they came right back again. A lot of stocks are up significantly since those lows at the end of March of 2020. So I think that really what we need to do is just focus in on the longer term, understand that some of this noise is going to create some opportunities for us down the road.

KATHERINE ROSS: So I just want to clarify here. It kind of sounds like it's a time not to panic, don't get too worried here, because there are so many unknowns. Is that what you're saying, Bob?

BOB LANG: That's correct, yeah. And listen, you know what, we constantly wander through the investment landscape of the path down the road in the future with a lot of unknowns. We don't know a lot of different things that are happening. We try to predict, but some of those predictions kind of fall by the wayside.

I think, as you just stated, the best thing to do is not panic, just stay steady, pay attention to what's going on, and be patient. And I think this thing will subside like all the other events in the past.

KATHERINE ROSS: OK, let's talk about Powell's prepared remarks, Bob, because he is, as I said, set to testify today on Capitol Hill. He said in his prepared remarks, and I'm directly quoting him, "The recent rise in COVID-19 cases and the emergence of the omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation." What do you want to hear from him today in D.C.?

BOB LANG: Well I would like to see-- I would like to hear him finish that statement, which would be, we will remain accommodative until things turn to the point where we're ready to raise rates and get more aggressive against inflation. That's really what the end of that sentence, what you read, should be sounding like.

I'd like to hear Powell say that he's got a little control over things. He may actually even express some interest and delight that President Biden is going to renominate him to be the chair. And we're going to be adding some new people on onto the committee as well, too.

But for the most part, I think that Chair Powell is starting to get pleased with things. But he is playing things very close, his hand close to the vest, right now. And I like that. I like-- but he's being very transparent about how the committee is going to manage things.

If you looked at Fed funds futures last week, they were predicting about three rate hikes coming in 2022. June, September, and December were pricing in the most. Now it's pushed out to about two in 2022. So first one would be September, and the next one in December. So I think that that is really telling. And I think the market is responding to that, which is the reason why interest rates have been following the last couple of days.

KATHERINE ROSS: So Bob, my follow up here instinctively is the fact that we do see negative momentum in today's trading session. We saw the market kind of pick and choose. And you, myself, and Chris Versace, actually this morning, were talking about this. The market's been picking and choosing the variant headlines to follow.

So for example, we're seeing a lot of the Moderna headlines, where the CEO basically said that he wasn't sure if the effectiveness of the vaccines was going to withhold against omicron. But the Pfizer CEO came out and said there's not enough data to say one way or the other.

Let's say that whatever Powell has to say today spooks the market further than it already is. And what is your top tip for members if that happens?

BOB LANG: Well, you know, I would say that-- I mean, as an investor, you know, I like these opportunities, especially in uncertain times. I think you said-- you stated it correctly there. The Pfizer and the Moderna CEOs who really are on top of this virus containment that they are trying to manage here are saying two different things. And that creates a lot of uncertainty.

And this is why the volatility index has been rising today. Because people are fearful, they are worried, who's right? We don't know? Is the Moderna guy right? Is the Pfizer guy right? And Chair Powell is not going to choose sides here. I don't think he's-- I think he's just waiting to hear the data, although I do believe he's very sensitive to emotions and how they translate into selling into the markets.

And I don't imagine though-- I mean, this is a guess on my part-- I don't imagine he's going to say anything to spook the markets here. The only way he would do that is if he said that, you know what? We're still going to be aggressive. We're really antagonized by the increase in inflation, and it's not going to be transitory. This is the only thing that's really going to spook the markets, Katherine. I think that if he really continues to talk about that ad nauseam today, the markets won't like it.

KATHERINE ROSS: All right, let's switch to some positive news here. As of this taping Microsoft is somewhat positive. It's essentially flat, but it is in the green. It's inching that way. So keeping this tight as we see it inch closer to that 52-week high, Bob, what does the chart tell you about where this stock goes?

BOB LANG: Well we were going to talk about this yesterday. And actually the stock got pounded on Friday, with a lot of other growth stocks. And it came right back strong on Monday, and it was a very impressive day. And as you said, it's starting to be a little bit green on today's session.

I circled down in the bottom right volume bars. And you can see that it's been-- the volume trends have been rather bullish. And the top pane is relative strength. And you can see that that 45 to 50 level has been some good support, and it bounced off of there once again today.

So I do like this. I do like this name. It was in need of a bit of a pullback here, much like it had earlier in the month of November. It pulled back for four or five days. It's still got a strong trend. I mean, look at that chart. I mean, there's nothing-- it's not doing anything wrong, other than pulling back and giving investors a dip, buy the dip opportunity on this one. So I really still like Microsoft.

KATHERINE ROSS: All right, Bob. And finally I do want to note before I ask you this question that I did edit the question for clarity reasons. But Jane Z. Is looking to better understand the VIX from a monthly perspective. Based on your comments last week, the VIX futures were flat, right ahead of Friday's sell-off. So can you explain how you monitor the VIX?

BOB LANG: So I look to the VIX in terms of the term structure. What is the term structure? It's just that there's volatility futures, and there is this VIX cash. The VIX cash is the thing that people talk about the most. And the VIX cash estimates volatility over the next 30 days.

But then we have volatility futures, which expire every 30 days henceforth. So we have a December future, which we're currently working against right now. There's a January, February, March, et cetera. And the term structure of that is the way it's shaped or way it's sloped tells us what the consideration of the markets are.

So when the term structure is steep, that's what's called a contango. That's a commodity term, and that's pretty bullish for markets. When it's the reverse, it's bearish, so when it's steep going the other way. People are buying protection on the short end.

But what we see every month is that the VIX has to match up with the VIX futures. Because what happens when those VIX futures expire, they become the present. So they become the VIX. So as we narrow down in about 2 and 1/2 weeks, we'll see the December VIX future expire.

The VIX and the VIX future have to come together. And that was probably the point of my discussion a couple of weeks ago. What those two numbers have to come together, and either the VIX has to rise to meet the VIX future, or the VIX future has to come down to meet the VIX cash. So we saw both of those things occur a week and a half ago, right before for Thanksgiving.

So the VIX member is just an indicator. A lot of people used to say, oh, VIX doesn't work anymore. All it is is an indicator. It just tells you how many more options are being bought on the S&P 500 puts versus calls. That's all it's telling us here. And it's a sentiment reading indicator. So you really can't use it for anything but other than just giving you a heads-up in what direction the markets are going.

KATHERINE ROSS: All right. With that guys, I've got a plane to catch. And Bob, you've got a train to catch. We will see you live tomorrow, Wednesday, December 1st at noon for our monthly members call. We're looking forward to it. So we'll see you then. Thank you.

BOB LANG: Thanks. See you tomorrow.