Major Volatility Indicators Test lows into the CPI

Yo Pit Crazies,

I hope you enjoyed the holiday weekend. I took Easter Monday off for a little ski action.

The old Wall Street saying goes “Sell in May and go away.” And I think it’s because the promise of what the year will be in January gives way to whatever the reality is with 33% of the year in the books.

Also, Wall Street takes a vacation in the summertime. That means there is usually lower volatility … and that is a condition I can trade in the Trade Desk or Nitro Trader.

Below is a chart of the iPath S&P 500 VIX Short Term Futures ETN (Ticker: VXX). That product is making a low into the CPI number this Wednesday.  

VXX 10-Day Chart with one-minute candles

I find it odd but I think there is a reason for it.

It’s For the Market to Sell Off When I Keep Seeing Volatility Lows

VXX holds VIX futures and that basket of futures is at a one-month low.

Yes, it is true that markets can tank from low volatility, but usually rallying markets do so in lower, more stable price swings. Since this is the most Fed influenced market that I can remember, the massive QE infusion of the last few weeks is bringing about the effect of lower volatility moving forward.

It sounds hard to believe but that 4,000 level is looking like good support moving forward and the very real possibility of a quiet bull, lower volatility market going through the spring is looking more likely.

If there is no bid for volatility going into Fed announcements and CPI numbers, the market knows what to expect and, for now, we get higher rates and more inflation, just not as much as last year.

That is an expectation traders can count on, so vol should keep dropping while markets continue to rally.

To Your Trading Success,

AG