Subscribe to receive this FREE daily commentary directly in your email
As noted yesterday, the VIX 1-Day indicated a 1.6% move—and that’s precisely what we saw today. These aren’t any magical predictive powers on my part; they’re simply market mechanics at work. So, while the market did rise and some might believe “we’re so back” and ready to “run hot” again, I’d caution that this may not be the case. I noted in Sunday’s write-up:
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 question, of course, is what comes tomorrow—and that’s not as easy to answer. Given that the VIX 1-Day closed at 14.7, a more modest 90-basis-point move is being priced in for tomorrow. The only issue is that Jay Powell is scheduled to speak tomorrow morning around 11:30 a.m., and it’s quite possible that implied volatility rises into that engagement. If volatility rises ahead of Jay Powell or after, for that matter, the stock market should decline.
Technically, the S&P 500 reached its 20-day moving average today but failed to hold above it.
Additionally, the index saw a gap higher at the open today, following a straight-line drop into Friday’s close. These types of patterns tend to be unstable and are often retraced fairly quickly. Given that volatility has largely reset and the index failed at the 20-day moving average, there’s a good chance today’s rally gives back its gains, resulting in that gap being filled over the next couple of days.
In the meantime, with the bond market closed, I have no idea how credit spreads would have traded today, nor do I know where overnight funding costs would have settled. So, delving any further into today’s price action is pretty much useless.
-Mike
Glossary by ChatGPT
-
Basis Point (bps): One hundredth of a percentage point, used to measure changes in interest rates or yields.
-
Credit Spreads: The difference in yield between corporate bonds and comparable U.S. Treasury securities, reflecting perceived credit risk.
-
Gap Fill: A market phenomenon where prices move back to cover a previous gap between trading sessions.
-
Implied Volatility: A metric reflecting market expectations for future price fluctuations, derived from options pricing.
-
Moving Average (MA): A technical indicator showing the average price of an asset over a set period, used to identify trends.
-
VIX 1-Day: A short-term volatility index measuring expected S&P 500 movement over a single trading day, based on options pricing.
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.
Subscribe to receive this FREE daily commentary directly in your email
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.
Columbus Day Pause Highlights Volatility Mechanics
Mott Capital's Market Chronicles 9 hours ago