BY ANDREW GIOVINAZZI
May 5th, 2025
Yo Pit Crazies,
As we prepare for the Big Reveal on Wednesday, traders are turning to the FOMC to help divine the future of interest rates. Anyone who reads my column on a daily basis knows I think Congress is veering into a dereliction of duty when it comes to the budget. They just can’t say no. Eventually, the bond market will force their hand—we just have to hang on until that day comes.
The VIX curve is completely flat heading into this meeting
What does that mean, and why should we care? First, this is what I’d call an observation trade—I’ve been tracking the VIX curve for nearly 14 years and monitoring volatility in general for over 35 (though I hate to admit that last part). When I notice a certain pattern heading into an event—that’s Part 1—I also make a point to watch what happens coming out of it—that’s Part 2.
A flat VIX curve—just a one-point difference from back to front—signals uncertainty around short-term volatility. Traders are positioning for a potential move in either direction. In other words, the volatility event that began on April 2 could either reignite or fizzle out, sending the VIX toward the lower end of Zone 3. The focal point is Wednesday’s FOMC meeting, which traders anticipate will trigger a meaningful move in the SPDR S&P 500 ETF (ticker: SPY)—though it could go either way.
Typically, the VIX tends to drop after a major event. My hunch is that the Fed will lean slightly dovish given the current backdrop of uncertainty, which should be supportive for equities. I’m preparing to position for this scenario on Wednesday morning – make sure to add that to your best calendar here.
While Congress could surprise us with a reasonable spending bill, that would be the exception, not the norm. Today’s modest pullback in response to increased tariffs is actually the more telling signal—traders are looking beyond the tariffs, not focusing on them.
SPDR Standard and Poor’s 500 Index Trust ETF (Ticker: SPY) 5 day chart.
A move to 570 or even 550 on SPY this week wouldn’t be surprising, and I expect the VIX curve to slide into steep contango around a 20 VIX level.
To Your Trading Success,
AG
Andrew Giovinazzi
30-Year Trading Pro
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