Yo Pit Crazies,

Stocks are printing record highs. So why won't the VIX, Wall Street's fear gauge, buy the rally?

I just got back from a lovely 10-day vacation. I checked the market once a day, tops, and did most of my closing in the morning setup before heading out to play golf. Thankfully I trade better than I golf, and that has held true for most of the last 30 years.

The best part: I got to play with some of my favorite people, my sons and my nephew.

Now to this sticky VIX. We broke below 16 for the first time since January. I would have to think hard to recall the last time it waited until late May to crack 16, then spent a chunk of that stretch parked at all-time highs.

Funny thing: me leaving on vacation marked the short-term top, and right now looks like the recent bottom. The chart below tells the story.

30 Day VIX chart

Here is where it gets interesting. The VIX July future is still hovering near 20. That is almost a full four points above where cash VIX sits right now.

That gap between the future and the spot is the whole story of how VIX has traded these last few months. Short-term volatility can drop, but the longer-dated volatility is staying stubbornly high. In plain English: traders are relaxed about today and tense about a few months out.

Here is the mechanic. As at-the-money volatility (the price of the options closest to where the index is trading) climbed alongside the SPX, it dragged VIX up with it.

VIX is the effect. Higher implied volatility, IV, the market's estimate of how big the swings could be, was the cause.

Deal or No Deal

So I took VIX out of the picture on all my recent trades. I think the IV on the one-month options in SPX and SPY is underpriced, while the longer-dated options look overpriced.

That setup is exactly what my new Weekly Profit Cycles strategy is built to attack over the next month.

Come join Wednesday for a free open house to see the strategy in action for yourself.

To your investing success,

Andrew Giovinazzi