The Option Pit VIX Traffic Light Is Yellow: Volatility is likely to move wildly.
So, we have a yellow VIX Light. But it is closing in on green.
Remember …
- Red: When I see (or foresee) the VIX heading down and volatility dropping.
- Yellow: The VIX could go either way depending on a wide number of influences.
- Green: When the VIX is shooting up and vol is spiking.
The S&P 500 closed down just under 19 points to settle at 3951.39… at the same time the VIX fell .12 points.
But VIX futures actually rallied.
Why?
Because we are sitting here:
We are currently below the 50-day moving average and literally sitting on this long-term support line …
Five points below that would be a break of 3,950 in the S&P 500 futures … and five points below that would be a break of the 200-day moving average.
The market tested the 50-day for a few days, Friday through Tuesday… Now it is testing this trend line and the 200-day moving average.
It appears that those levels are going to break.
That means the market is going down … but how will it go down?
It is not going to be an easy-to-short straight-down move. It is going to be more of the choppy-sloppy mess we have seen on the way down over the last month.
Look for the S&P 500 to head toward 3850, but it might take another 2-3 weeks.
In the meantime the VIX is going to sit here, or even drop.
When we get to 3850, that is where the real decisions on market direction will be made – a break below and we head to new lows … a bounce and hello again to 4150.
I continue to think the key is to own out-of-the-money butterflies in SPX and hedge the risk with long-dated VIX puts.
VIX is going to be 15 by August, but the market might be exactly where we are at today.
Your Only Option,
Mark Sebastian