5500 is the new hard top

BY ANDREW GIOVINAZZI

June 30, 2024

Hey OP Crew,

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

If some of my Option Volatility Jargon is vexing, our Glossary is here.

Don’t forget our conference is 3 weeks away. Hang with Licia, Voz, Mark, Frank and Me your humble Volman.

“The Hard Top is for your safety, Maverick”

Last Week:

“It is hard for me to short aggressively a 13.20 VIX. But I do think the Volatility Risk Premium (VRP) is crazy high. This week there is no real news, so I expect all time highs (ATH) in SPX. However, VIX will not make year lows unless there is a decent 1% pullback in SPX. It sounds nuts but that is the way it is. I don’t make the rules but I do tell you what they are. There is likely to be a pullback in SPY and I will dump my SPY puts this week.”

I was wrong about the news but right about the VRP as VIX dropped about .80 to close near month lows. We had month lows in VIX going until midday Friday when SPX dropped quickly from all time highs (ATH) for no real reason for a 1% intraday sell off going into the 3 day 4th of July holiday.. PCE was in line and the debate produced no real surprise.

This is probably the time to bleed the election into the stock market because it will start to move things. From where I sit we have two candidates and the Kennedy guy. CNN figured out Joe Biden declined somewhat. DJT is still DJT. On balance, the debate did not move the market but probably helped DJT.

Remember live is better than on camera, check out our event in July!

Traders seemed to wait all week for the debate. I was surprised by this fact. If anything there was a chance for DJT to look more refined but I don’t think that happened. I don’t think the debate helped the Biden camp much. AI stocks looked tired by the end of the week. If there was a metaphor, SPX just ran out of gas at the end of the quarter. Still we hit 5500 once again which is a bit of a Hard Top right now. Apparently we can not go though it just yet.

SPX daily price action over the last 30 days

SPX got to an all time high Friday before backing off. The same as last week. That is 3 weeks in a row SPX has made an all time high at one point during the week. The larger surprise was the close near the lows of the week. 5500 is a good inflection point for trades next week.

SPX sigma (Vol per term average) levels over the last 30 days.

Sigma Vols started the week at relative highs and spent all week dropping. This was the Vol Risk Premium (VRP) I spoke of last week. It is like a leaky tire, air slowly comes out if there is no real action. Note the sigmas barely moved Friday even with the selloff in SPX into the close. No real fear there.

SPX realized volatility snap on Jun 28 2024

Realized vol is 5.70% for the last 10 days so unchanged to stay at very low levels. We did get a break in the market direction somewhat going sideways all week and just ending up going nowhere for SPX.

OP VIX Zone Watch

VIX ZONE 1 9-13 We are here

VIX ZONE 2 13.01 TO 17.99 We were here

VIX ZONE 3 18-23.99

VIX ZONE 4 24<

VIX closed near .75 points lower on the week and was very close to over a 1 point and a trip to an 11 handle close for the 1st time since Dec 2023. The VIX curve is in a steep contango which is normal for the holidays.

Closing VIX curve, Jun 21 2024

Closing VIX cash and curve, Jun 28, 2024

The VIX curve is very steep coming into the last 3 weeks of the July cycle. This does mean Vol Products like UVXY could have a tough week and likely finish at all time lows.

Basic Vol 101 on our Option Pit YouTube channel.

VIX 30 day chart with 1 min candles

We have a start to the quarter at VIX lows. My guess is some light follow through from Friday and then fund managers jam some stocks up into the holiday. I expect SPX near 5500 again for SPX and VIX near 11.50.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 14 for 17 for Opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

To Your Trading Success,

-AG