More highs as IWM gets into the race for the 1st time this year.

BY ANDREW GIOVINAZZI

July 15, 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 1 week away. Hang with Licia, Voz, Mark, Frank, Griff and Me your humble Volman.

Last Week:

“Big Tech earnings are coming in late July early August. Until then, since JB is staying in the race for now, expect QQQ to 500 going into earnings. It is hard to be bullish right now, so it is likely the thing to be. More of the same, small pullbacks with long rallies. I don’t expect much out of VIX but would like to see it tickle the 11 handle.”

Well shut my mouth and hold the phone, QQQ hit 500, VIX traded 12.18 and my only mistake is even thinking of not being bullish for a hot minute. I will call that a partial win but still closed many good trades across all products this week.

I think the big news for this week is around the Taiwan Semiconductor (Ticker: TSM) earnings on July 18th. The inflation news was mixed and Chairman Powell basically said he was stuck with rates where they are. Once again, no one is mentioning the insane level of government spending over the last 4 years starting in 2020. Once that stops, rates will go down.

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

We did see a massive unwind on Thursday, with traders dumping big tech and jumping into the Russell 2000 midcap stocks (Ticker: IWM). IWM is finally green for the year and picked up 5%+ for the week. Most of that move in tech was reversed Friday with SPX closing just shy of the all time high set on Wednesday.

SPX daily price action over the last 30 days

SPX closed near an all time high. The Invesco QQQ Trust (Ticker: QQQ) closed near an time high. The AI bull is still very strong and with more stocks picking up a bid this week the rest of the SPX is joining the rally. Bank earnings were just ok, but the stocks were already trading at near term high and it was enough to get banks to 3 months highs.

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

Sigma Vols closed at lows for the week across the board. SPX 30 day volatility is now looking at Aug but it did catch a small bid into the close on the .5% selloff in SPX from the all time highs. A bit of nervousness crept into the weekend. But 30 day lows in all sigmas going into the weekend in my mind means traders are looking for good to great earnings flowing next week.

SPX realized volatility snap on Jul 12 2024

Realized vol is 8.58% and skipped a bit higher this week with the bigger Thursday Friday range. The big takeaway is after a big move, SPX is still higher. A small selloff followed by strong buying. The VRP, or Volatility Risk Premium, is still rich so SPX IV easily covers the move.

VIX Volatility Curves

VIX closed basically unchanged for the week with only a brief trip to 13s. When VIX highs for the week are mid 13s we are in a Zone1 bull market. Stocks are going up. That was the message last week and the message this week. Stocks settled into what is close to a normal contango.

Closing VIX curve, Jul 05 2024

Closing VIX cash and curve, Jul 12, 2024

The VIX curve is very steep with all the futures lower from the previous week. All Vol Products like UVXY took another hit. The Election Cycle VIX future lost .27 and the Oct/Nov lost .04 so there is a drip back to a more normal curve.

Basic Vol 101 on our Option Pit YouTube channel.

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<

There was a small pop into the CPI/PPI number. The net result was stocks stayed with the range and VIX lost any extra premium as did the VIX futures.

VIX 30 day chart with 1 min candles

Big Tech earnings are coming in late July early August however a tone will be set on July 18 with TSM coming out. Most of the big chip makers use TSM in some way. Semiconductor growth is essentially unlimited at this time and that is what the market is feasting on. I expect us to retake highs in QQQ and new highs in SPX on the back of a strong report out of TSM. VIX is again likely to stay in the 12-13 range.

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.

Let’s Go

To Your Trading Success,

-AG