VIX played Zone Offense this week

BY ANDREW GIOVINAZZI

March 16, 2025

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AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…If these crazy 2% daily swings are giving you fits, check out my VolMan’s service.

Last Week’s Big call

Last Week ending Mar14:

Zone 4 might get another sniff but I do not believe it will hold. The reality is the market was giddy about the new administration but traders realize any real change will be difficult. For the short term, Europe is going to pay for its defense, tariffs don’t seem to get worse and D.O.G.E. is still making progress. Traders now know that a slowdown is inevitable due to a cut in government spending. The question is how we get through it. At this point the price to pay for the withdrawals from the USGov spending addiction is pretty low. My guess is that SPX 5900/5700 is still in play but 100% of the endpoint will be the news cycle. VIX should break 20 if that is the range.

Weekly Wrap up

I am giving myself a B- . The range did not hold, SPX broke out of it, but spent most of the time between 5700-5500 SPX which is roughly 570-550 S&P 500 Trust ETF (Ticker: SPY). From last week to this week SPX ran 8.3% down and VIX made a new high. What caused the big tank in SPX? Well, the inflation numbers were too good so I was very correct in the news cycle taking over SPX from the AI narrative. I will explain.

CPI and PPI numbers came in very low relative to the forecast. That means businesses started pressing down prices to make sales because of the uncertain environment from tariffs, etc. All of a sudden the market figured out the White House plan by midweek and the plan is working. Lowering demand with tough love. The World Bank calls it austerity but to be honest, it will work. Greece is down to .6% budget deficit after sky high borrowing and nearly decapitating the Euro 10 years ago. The Greeks are enjoying relative growth now that the public sector jobs started moving to the private sector.

So in the USA we have short term pain for the long term gain and it really only knocked down crazy multiples to somewhat reasonable multiples for the Great 8 and other popular growth stocks. Pretty normal stuff really. That did generate extreme volatility in SPX/SPY as listed below.

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Keep reading to see how the story played out.

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SPX daily price action over the last 30 days with 1 day candles

SPX Sigma (volatility per term) for Mar, Apr, May

SPX had quite a trip as any news was bad news all week until Friday. Stocks could not hold the Thursday lows as Congress was able to “freeze” spending at an absurdly high level for the next 6 months. Traders saw that as a win since halting spending growth is better than growing it more.

The sigma IV indicator was back to the same place it was 1 week ago after some huge upside moves. As for now, volatility is pricing in the current Witches Brew policy mix the same as last week.

SPX realized volatility snap on Mar 14, 2024

Realized volatility for 10 days (HV10) is now 24.33%. The 60 day realized (HV60) is 16.75.

Average True Range (ATR) is sky high with some days 200 points or more SPX. Note that all the relative volatility (HV) from 10 day to 60 day is backward so that means the market is in a new phase with the current USGov policy. That policy ignited the new realized volatility regime the bulls in SPX suffer from today.

Reasonable realized volatility targets are now sub-17 or over just 1% per day for the next 60 days.

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VIX Volatility Curves

Closing VIX curve, Mar 07, 2024

Closing VIX cash and curve, Mar 14, 2025

The VIX curve started to shift with the Apr VIX future .02 from where it was last week. Use this as a guide that the market just thinks more of the same for next week. The VIX futures curve did flatten out so the predicted trend, ever so slightly, is for a bit less volatility for the coming week.

Basic Vol 101 on our Option Pit YouTube channel

OP VIX Zone Watch

VIX ZONE 1 9-13

VIX ZONE 2 13.01 TO 17.99

VIX ZONE 3 18-23.99 We are here

VIX ZONE 4 24< We spent most of the week here

VIX is in Zone 3 and spent most of the week in Zone 4, made new highs, then retreated. When watching VIX, failure to hold higher levels is usually a sign that the market thinks the Vol Regime is over. VIX made a fresh low for the week, which is another side of the uptrend ending.

VIX 30 day chart with 1 min candles,

VIX is now in Zone 3 and tried several times to melt up only to sell off into the close Friday. Lower lows for the last two weeks is a very bearish VIX indicator since usually when VIX drops in a Zone it goes to the bottom which in this case is around 18.

The Big Call

VIX should decline in fits and starts from here. Realized volatility is very high still so any move in VIX below 20 would be the market betting lower volatility and just higher SPX is on the way.. At a 20 volatility, 1.25% per day in SPX, 5750 is likely an upside target or 570 SPY. Any bearish headline will send SPX down 100 points so expect 1 of those next week. As for now, there was a tone change in the buy in on the White House agenda by the end of the week, so slight bullish SPX, and it should continue at a slightly reduced pace from the previous week.