First up today, if you have not made plans to attend our Chicago Trading Adventure (also known as OP Live 2023) do so now before all the slots are filled. It’s the first week of May and Chicago weather is near perfect every year. The trading conditions will be pretty great, too.
Moving on …
A lot of trading is patterns and closing winners.
Most of investing is buying good assets at good prices and holding on for long periods of time.
The two things are not the same. Right now, we are in a trading market – but there are also good opportunities for investors. That is something our students learn in OP Mentoring.
Speaking of trading, take a look at the 10-day VIX cycle below …
VIX 10-day chart with one-minute candles.
There was panic, VIX shot from 19 all the way to 30 when the potential bank crisis came to a head with Silicon Valley Bank. As of Tuesday morning, VIX traded the low of the cycle.
That is important and I will explain why.
Also, here’s a video on the difference between trading and investing.
VIX Is a Measure of Expected Ranges in SPX
Traders don’t hear that a lot since CNBC just parrots the marketing line “Fear Gauge,” but the truth is VIX measures the expected range of 30 day options. The simple guide to trading VIX is:
- When VIX is rising, expected 30-day ranges are increasing for SPX
- When VIX is dropping, the expected 30 day range is decreasing for SPX
VIX trading 21 and hook means most of the volatility is out of the market from the banking crisis. But not all of it – andI think some of that volatility is meant for the upside, so read on …
When VIX hits 30, that usually means there is some kind of systemic issue that could last for a longer period of time. It’s normally hard for VIX to stay above that number for any length of time, and this latest banking bailout was no exception …
For now it is possible that most banks had enough risk management in place to ride out the rise in interest rates. It’s too soon to tell that but it did cause some bank casualties, most notably Credit Suisse AG (Ticker: CS) and a couple of mid-sized banks in the US.
At this point I can’t see how the Fed keeps raising rates since their actions have helped to cause some banks to go under here.
As Griff says, the Fed restarted QE without saying so by adding overnight liquidity again. I think Powell simply declares they have broken enough to “pause” hikes for a while.
That should be enough to set stocks higher up and over 4000 SPX – maybe to 4100 – in the short term. Should be a wild day.
Griff goes live to trade the close post-Fed at 3:15 p.m. ET. Join him for no cost.
To Your Trading Success,
AG