Yo Pit Crazies,
I spent today in Ripzone walking my students through everything that has to line up before VIX drops into Zone 1, which is 13.99 or lower. Every box was checked while I was talking. Then Warsh got up in Wyoming and started in on price stability.
Here's the list I gave them:
- VIX looks 30 days ahead, so the calendar has to be clean
- VIX9D has to be below 12
- VVIX has to be below 90
- Weekly IV in SPX needs to be in the single digits
- Realized volatility needs to be in the single digits for at least 10 days
That isn't everything, but it's most everything. Stocks have to settle down and they need a reason not to sell off.
SPY 10 Day Chart With 1-Min Candles
Warsh told the room that this summer's better inflation prints don't tell him underlying trends have improved, and that the Fed has work to do if that doesn't change. Odds of a September hike went from about 35 percent Thursday to almost 60 percent by Friday afternoon. Short-end yields jumped on it.
That's the piece that matters for Zone 1. The 30-day window now has a live Fed meeting sitting in it, which puts a floor under vol no matter how calm the tape looks.
In the old days, higher rates would crush demand and slow prices down. Congress didn't get the memo and keeps spending money it doesn't have, faster than anyone can track where it goes. COVID-era deficits were insane in 2020 and somehow they're the baseline now.
Warsh knows it. Everyone in Congress knows it too, and nobody's touching it before November 3.
The other thing keeping VIX off the mat is oil. Crude is sitting near $83 with the Strait of Hormuz still bottled up, and the EIA doesn't expect Middle East production anywhere near pre-conflict levels until 2027. That isn't a hangover from the Persian Gulf. It's still going.
Meanwhile the roster of companies inside the SPDR S&P 500 ETF Trust (SPY) is printing records. Q2 net profit margin came in around 16.9 percent, the highest FactSet has tracked since it started keeping the number in 2009. Revenue growth was the best since the end of 2021.
VIX Came Within a Dime of Zone 1
VIX 5-Day Chart
We got the year low today. VIX traded down to 14.1 right after the speech, which is the lowest print of 2026, then finished around 14.47.
In three years it'll be my 40th year trading. I've traded options in the 1980s, 1990s, 2000s, 2010s and 2020s, and five decades still kind of blows my mind. One rule stuck harder than the rest:
Nobody wrecks stocks faster than the US Government. Nobody fixes them faster either.
The government could have sat COVID out the way Sweden did and saved close to $6 trillion in relief spending. There was a low-cost plan built around the Army Corps of Engineers that got dropped in favor of the shutdown. Warsh inherited the bill and he can't pay it down without Congress.
So the year low is in the books, but lower into Labor Day is now a question mark. Whether we get a Zone 1 close in 2026 depends on it. My guess is this bump doesn't survive past Monday, because we have every element of Zone 1 in place and just need Washington to stop stirring the pot.
Hopefully this was helpful,
Andrew