Yo Pit Crazies,
VIX rallied for two straight days last week while stocks went up. That’s backwards. Normally when stocks rise, VIX drops. When they move together, the volatility market is telling you it expects surprises ahead.
Good GDP numbers didn’t calm it. Strong earnings didn’t calm it. The House completing all 12 appropriations bills didn’t calm it. VIX is stubbornly elevated, and I see three forces keeping it there.
Force 1: Political Chaos Has a Price Tag
What a weekend. A protester got shot during an ICE operation in Minneapolis. Now we’re heading toward another government shutdown on Jan. 31, this time over ICE funding.
The volatility market sees this political theater and prices in the uncertainty. A shutdown is all but assured at this point, and VIX reflects that.
Force 2: The Silver Squeeze Nobody’s Watching
I keep thinking about the old Burl Ives song “Silver and Gold.” Right now, silver is doing something ugly in the futures market.
Here’s what’s happening in plain English: China controls most of the world’s silver refining, and as of January 1, they’ve restricted exports to only large, state-approved companies.
Meanwhile, traders have made bets on silver that require them to deliver actual metal they can’t get their hands on. So they keep pushing their delivery dates further out and paying more to do it. The price keeps climbing, not because factories need more silver, but because traders are scrambling to avoid getting caught without the goods.
When metals go up 3x on a supply squeeze instead of real demand, it usually ends badly. If this spills over into other markets, VIX will feel it.
Force 3: The Market Smells Something Stocks Don’t
When VIX and stocks move in opposite directions, the world makes sense. Stocks up, fear down. Stocks down, fear up.
When they move together? That’s the options market saying: “Yeah, stocks are up today, but something’s coming.” Traders are paying extra for protection even while prices rise. That’s not normal behavior.
What Would Actually Get VIX to Drop
VIX won’t drop until at least one of these three forces eases up. I’m watching for:
- ICE de-escalation. If the political temperature drops, so does shutdown risk, so does VIX.
- Silver or gold pulling back. If the squeeze unwinds without blowing up, one source of contagion fear disappears.
- Congressional sentiment shifting. If lawmakers signal they’ll avoid a shutdown, the market can exhale.
Any one of those three things will get VIX to drop and stocks to jump. I think we’re waiting until the end of the week, at least.
To Your Trading Success,
AG