S&P 500 lows may be in, but record highs may be far off yet

Yahoo Finance's Jared Blikre breaks down how markets opened on Tuesday.

Video Transcript

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BRAD SMITH: Good Tuesday morning, everyone. Welcome back to "Yahoo Finance." We're 10 minutes into today's trading activity and we are mixed right now. The Dow Jones Industrial average holding onto gains by about 0.10%. S&P 500 and the NASDAQ composite, though, in negative territory.

Let's get on down to the New York Stock Exchange floor where Yahoo Finance's Jared Blikre is standing by. Jared, what are you seeing so far?

JARED BLIKRE: Well, kind of a ho-hum day. Not a lot of action in the early going. So I thought I'd take a broader look on the YFi Interactive, only noting that the Russell 2000 is now down about half a percent, not even that.

But let's get straight to the action now. S&P 500 made a record high. Its last record high was on the very first day of the year so kind of an unusual circumstance. But that's why this year-to-date chart that we're looking at is very important here.

If you take the high here and you take the low, and you take the 50%-- that is a half way back mark-- that it has traversed, it cleared that a few days ago. And Sam Stovall of CFRA was out with an interesting analysis this morning saying that in the post-World War II period, every time the S&P 500 has recovered at least half of its losses, the lows are in. And that could be the case.

And I went back and I checked, even going back to the 1930s. However, there is a caveat. That going forward, it might be a year, it might be two years before we see record highs again. So it gets back to one of my favorite sayings from Brian Shannon, founder of Alpha Transfer, a friend of the show. "If they don't scare you out, they wear you out."

So we might be in a position here where we've had this flashy rally. And now, we take a back seat for a minute. And we'll have to see what happens. But sideways action does tend to frustrate traders.

I'll also say there is an important option's expiration, the monthly one, this Friday. Also, the VIX futures are expiring tomorrow. There are a lot of technical considerations here.

But just look at this year-to-date chart of the VIX. We are right back down to potential support. That is where we have seen the market turn before. And when the VIX turns higher, that means stocks are turning lower. And for a variety of technical reasons, we have a lot of long gamma rolling off this Friday. And that happens with options expiration.

That means heading into next week, the moves to the downside, to the upside, could be a little bit more volatile. And so all of this is taking place within the liquidity vacuum that we have in the summer.

We're just about over earnings season, at least the bulk of it. And we're just looking for that next major catalyst. And in the absence of that, we could very well see a return to lows. We could see the market squeeze a bit higher.

I go back to the S&P 500. Going into Friday, 4,200, 4,300 are the big strike levels. And so I'm gonna be watching those as a hawk. I'd be surprised if we deviate beyond that range going into Friday, at least, guys.

JULIE HYMAN: Yeah, although, as we know, for those of us like you and me who have been watching this stuff for a while, in August, things can get weird. But we'll see what happens.

Let's talk about crypto also. The Fed, by the way, is issuing fresh guidelines for accessing its payment systems. And also hinting that crypto firms would be subject to a higher level of scrutiny. As I've seen, it doesn't seem to be having a lot of effect on the price action here.

JARED BLIKRE: I'm not seeing it affect the price action that much either. We have Bitcoin around 24 to 25,000. A big level that it has to clear technically. But I think this is a big step for crypto in the US. I'm not saying this is the DeFi dream here, because this is kind of the antithesis of it.

If you want to sell securities in the US, if you want to pay interest on these accounts, if you want to use the Fed's system to transfer trillions of dollars-- that's very efficient, all right-- you're gonna have to become registered, you're gonna have to be subject to a lot of oversight. And that's what we're seeing here.

This is probably long term going to create some kind of regulatory arbitrage where we have actual DeFi movements overseas. But here in the US, if you want to access the Fed's payment system, you're gonna have to be registered as such.

Now, this doesn't mean that they're going to be given access to the Fed liquidity facilities. You have to be a bank in order to do that, like Goldman Sachs, JPMorgan. This would probably be more like Fannie and Freddie who lend their reserves in the federal funds market. We'll have to see what comes of this. But again, DeFi just not happening in the US here, guys.

BRIAN SOZZI: Jared Blikre, thanks so much.