Implied Volatility May Rise Sharply Ahead of CPI, The Fed

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6/10/24

#Stocks:

#Macro: $SPX, #10Yr, #VIX, #VIX1D

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Stocks finished flat on an uneventful trading session. However, the market felt more risk-off with the 1-month implied correlation index and the VIX moving higher. Typically, when the VIX and the implied correlation index move higher, the S&P 500 moves lower. Today was an exception to that.

The dollar continued to rally today, again, another risk-off signal.

With the CPI report and the FOMC meeting on Wednesday, I expect implied volatility levels to continue to rise tomorrow on both the shorter-dated and longer-dated implied volatility levels. The VIX 1Day seems very low, heading into a critical CPI report along with an FOMC that will also see the release of the Dot Plot. The VIX 1Day closed today around 8, and typically, it gets to around 17 to 19 by the day before the CPI report, and I don’t see why tomorrow would be any different.

Tomorrow, we also will have a 10-year Treasury auction, which will follow what was not a great 3-year Treasury auction today. The 10-year has increased sharply in the last two trading sessions and is back to 4.47%. There is some risk with tomorrow’s auction since it comes the day before a CPI and FOMC meeting. Generally speaking, rates were higher globally today, and now that the next ECB rate cut isn’t clear, while the US markets are repricing rate cut expectations following the hot US Job report.

Also not helping rates was the surge in Oil, which was up nearly 4% on the day. Oil went from being down and out right back to where it was before the OPEC+ meeting. Now, oil threatens to break out and move above a downtrend that would be a real shock to the inflation and oil bears; all it would take at this point is a push above $79.

Meanwhile, the S&P 500 appears to have formed a head-and-shoulder pattern or a diamond reversal pattern on the intraday charts. If so, the index could return to the 5,260 to 5,280 region.

Have a good evening.

Mike

Charts used with the permission of Bloomberg Finance L.P. 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

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.