Yo Pit Crazies,
You may – or may not – be surprised to learn trading mostly consists of applying the same approach to the same condition over and over again.
While that applies to a good amount of trading, the VIX futures curve shows its hand in a lot of ways.
Take the close on Wednesday, for example …
Good CPI numbers pushed the Nifty Five – Meta (Ticker: META), Amazon (Ticker: AMZN), Microsoft (Ticker: MSFT), Alphabet (Ticker: GOOGL) and Apple (Ticker: AAPL) – to year highs.
This is the story.
The Equal Weighted Nasdaq 100 (Ticker: QQQE) is unchanged since January 31 of this year. That means February, March, April, and a good way through May with no net gains.
The Invesco QQQ Trust (Ticker: QQQ) is not equally weighted. It is dominated by the bad boys above, along with Nvidia Inc (Ticker: NVDA). That is quite interesting, as money is going into one place. QQQ is up near 25% in 2023!
VIX curve on the close May 10, 2023
The last time the curve looked like this with the QQQ getting squeezed, something interesting happened …
Remember the Softbank Whale in the Summer of 2020?
Back then there were the elections and the QQQ was making a historic run up. The demand for Big Tech was nuts after the explosive COVID growth. Also, Big Tech earnings surprised everyone.
The big hedge fund Softbank decided to buy 1000s of options in the Big QQQ stocks, causing a massive squeeze higher. It also drove the contango in futures to record levels as back month option demand went sky high.
VIX curve in contango Aug 05, 2020
If you see below, the squeeze drove the QQQ straight up for three weeks in July and August 20202, and then a 12% correction in a matter of days.
5-year chart of QQQ with July/August 2020 highlighted
This time we have the Debt Ceiling and a QQQ squeeze. This is an eerie similar combo with a $4 contango in the June contract. It sets up for wild swings coming. Frank made the call in QQQ last night and we bought some QQQ strangles for Cap Gains and a SPDR Gold Trust (Ticker: GLD) call butterfly.
If history rhymes, QQQ should make a recent high before the squeeze ends. Wild times.
To Your Trading Success,
AG