Markets Brace for Data Heavy and Volatile Week

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A busy week lies ahead, with economic data starting on Tuesday with the JOLTS report, followed on Wednesday by the ISM and ADP reports, and concluding on Friday with the jobs report. The only problem, of course, is that the market is closed on Friday. Add to that the tension in the Middle East, rising oil prices, and a negative gamma regime, and I would expect it to be very volatile.

Implied volatility for the S&P 500 reflects that as well, with Friday’s IV expected to be much higher than where it will be on Monday, at least based on current pricing. Additionally, the gamma regime remains negative, which suggests intraday moves are likely to be directional and potentially grinding.

The biggest risk, of course, is how high the VIX 1-day finished on Friday, closing above 34—an extremely elevated level—which could come down sharply as soon as the market opens on Monday. It certainly appears high enough to push equity prices higher at the start of the week, similar to what we have seen over the past few weeks. The typical early-week volatility crush remains a risk.

The S&P 500 closed near a support level, but beneath it, there is a lot of air all the way down to 6,200. The only positives the index has going for it, aside from very high 1-day implied volatility, are that the relative strength index is below 30, and it is trading below the lower Bollinger Band. That is also a fairly good reason for the index to consolidate or see a meaningful bounce.

But a bounce driven by a volatility reset and oversold conditions doesn’t mean the bottom is in. That is a much tougher call to make. While areas like private credit have been showing cracks for months, with widening credit spreads in AI stocks and tightening liquidity conditions, oil has now added another layer of stress. And right now, nobody probably has a good feel for how high oil will or won’t go.

But again, just looking at the technical chart, it still seems like it could move higher. The trend in oil remains bullish, the 20-day moving average is still rising, and if oil can clear resistance in the $103 to $104 region on a closing basis, then there’s no reason it couldn’t rise to $112 or higher.

Anyway, that’s all for Sunday.

Mike

Glossary by ChatGPT

ADP Report: A monthly employment report published by Automatic Data Processing estimating private-sector job growth in the U.S.
Bollinger Band: A technical indicator using standard deviations around a moving average to identify overbought or oversold conditions.
Credit Spreads: The difference in yield between corporate bonds and comparable government securities, reflecting perceived credit risk.
Gamma Regime: A market condition describing how options dealers hedge exposure, influencing whether price movements amplify or dampen volatility.
Implied Volatility (IV): The market’s forecast of a likely movement in a security’s price, derived from options pricing.
ISM Report: A monthly survey by the Institute for Supply Management measuring economic activity in manufacturing and services sectors.
JOLTS Report: Job Openings and Labor Turnover Survey, providing data on job vacancies, hiring, and separations in the U.S. labor market.
Relative Strength Index (RSI): A momentum oscillator measuring the speed and change of price movements to identify overbought or oversold conditions.
Support Level: A price level where a security tends to find buying interest, preventing further declines.
VIX 1-Day: A measure of expected volatility in the S&P 500 over the next trading day, derived from options pricing.

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