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3 Takeaways
Expect a potential short-term rebound in the S&P 500 as volatility resets following Friday’s spike.
Watch for resistance near the 6,600–6,650 levels, where mechanical buying may stall.
Monitor systematic fund flows—volatility-control and CTA strategies could turn into net sellers if realized volatility stays elevated.
The S&P 500 fell by more than 2.7% on Friday, which came as a big surprise to many. While the size of the decline was certainly unexpected, the change in trend was not. What’s important to note, however, is that one-day implied volatility, as measured by the VIX 1-Day Index, rose sharply on Friday. That means there’s a good chance the S&P 500 could see a sizable rebound on Monday—at least to start the day—as volatility resets and the VIX 1-Day comes down.
The logical place to find resistance on Monday would be around 6,600 and then 6,650. One would think that once the VIX 1-Day stabilizes, the stock market will also steady, and the rally would likely stall. A VIX 1-Day reading of 25.7 suggests a potential move in the S&P 500 of about 1.6%, which would take the index right up to the 6,650 region.
The short-volatility metrics, however, matter less, because if the S&P 500 rises by more than 1% on Monday, realized volatility will also increase. That likely means volatility-control funds will become more active as they begin unwinding some of their short-volatility/long-equity positions. In fact, one-month realized volatility rose above three-month realized volatility on Friday, which serves as a trigger point for vol-control funds to sell.
Additionally, CTA flows have likely come into play and are now probably turning into sellers as the 20-day moving average trends lower. That means any morning buying could be met with afternoon selling.
Obviously, things can always play out differently, but I think it’s important to frame that a rally to start on Monday is highly probable—and if it does occur, it will likely be the result of mechanical effects from volatility resets. Once we get past that mechanical reset, however, everything that led up to Friday’s sell-off remains largely unchanged. Dispersion is still high, correlations are still low, and the spread between index and constituent volatility remains elevated. That means there’s still risk as we head into earnings season, which really begins on Tuesday with the big banks, a further unwind may be required.
Clearly, a worst-case scenario would be if the index continues to decline—which is certainly possible. That would also imply the VIX 1-Day is still rising, putting us in a situation similar to April 2025 or March 2020, where the damage from Friday’s decline proved much deeper than usual. There’s really no better way to handicap it than that.
Perhaps I’m just being overly granular about Monday’s open and trading dynamics, but I want to emphasize that, as of now, unless we see the 20-day moving average on the S&P 500 turn higher or realized volatility begin to drop, there’s a very high likelihood that systematic funds will be sellers. They don’t care about TACOs—they are rules-based, and those flows can have significant impacts on the market.
-Mike
Glossary by ChatGPT
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CTA (Commodity Trading Advisor) – A professional or algorithmic trader managing futures and options strategies, often trend-following and rules-based.
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Dispersion – The variation in returns among individual stocks within an index, reflecting differing performance levels.
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Implied Volatility – A market forecast of future volatility derived from options prices.
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Realized Volatility – The actual historical volatility observed in a security or index over a set period.
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Short-Volatility Position – A strategy that profits when market volatility declines, often paired with long equity exposure.
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Systematic Funds – Investment strategies that rely on quantitative models and rules-based trading rather than discretionary decisions.
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VIX 1-Day Index – A short-term volatility index measuring expected one-day fluctuations in the S&P 500.
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Volatility-Control Funds – Funds that adjust their equity exposure based on market volatility to maintain a target risk level.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
CTA And Volatility Funds Poised To Drive Market Pullback
Mott Capital's Market Chronicles October 10, 2025 2:00 PM