Yo Pit Crazies,
Keep an eye out for a Capitol Gains extravaganza later this week. As Uncle Sam gets ready for the second half of the Biden Administration, there will be winners and losers … Our job is to find which is which.
The S&P 500 (Ticker: SPX) hit 4000 on Friday … only to push back 1%.
The reason? Bad earnings in Snap Inc (Ticker: SNAP) and Verizon Inc (Ticker: VZ). Companies are not spending on ads, folks are late paying phone bills, and yet another Big Tech company is freezing hiring.
It is hard for stocks to climb on that. Yet the Cboe Volatility Index (Ticker: VIX) was down on the day.
Why was that?
VIX Is Already Pricing Extreme Market Action
When you read the headline above, remember that a 24 VIX is Zone 4, or the top 25 percentile for volatility.
VIX has been there since April (and for most of 2022) with all of the macro issues facing stocks. Quite frankly, none of them have been good and none are solved. It is more of a “detente” with the problem rather than a solution.
VIX four-month chart with 1-day candles and VIX option volume below
Note how VIX keeps bouncing off of the bottom of Zone 4 since the Fed decided to aggressively raise rates. We are still looking for that “pivot” to slow rate rise which has not yet happened.
Below are the factors that sent the SPX to 3,700:
Supply Chain Issues: Easing, but not over
Inflation: Easing but not yet in the inflation numbers
Energy Supplies: Russia shipping gas to EU
Ukraine Invasion: Wheat exports to start
Recession: Interest rates are rising but bond mkt showing a peak
When looking at this list, notice nothing is solved. However, there were some positive results this week, which is why we saw the SPX climb to 4,000. This current earnings cycle over the next two weeks is pivotal because it will show a true picture of the economy.
My Capitol Gains partner and I will cover some of these issues during Thursday’s live event (remember – keep an eye out for your invite), and we will draw up a blueprint for the second half of 2022.
I did close some positions (in Volatility Trade Club and SPYMaster) because we are at an inflection point. VIX bounced, and I made fast gains.
This week, we should see either the VIX jump back to Zone 4, or it will touch new lows if earnings are not too bad … yet another binary market switch.
The Rundown
Big Money Flow
Mark is on another hot streak with Levi Strauss and Co. (Ticker: LEVI) calls and a 145% gain.
SPYMaster
My SPYMaster strategy booked a 9% win. It may not sound like much, but it is the fourth gain in five trades, so we are off to a pretty blockbuster start.
Vol Trade Club
ProShares Ultra Short Term VIX futures ETF (Ticker: UVXY) and a SPDR S&P 500 ETF (Ticker: SPY) put fly generated 16% gain.
To Your Trading Success,
AG