This Might Only Be The Beginning

The VIX Light Is Yellow:  Volatility Is Going To Swing Wildly.


While the recovery on Thursday and Friday of last week were nice, the S&P 500 still ended up down on the week.


My traffic light went from “almost green” back to yellow.


So does this mean we are out of the woods?


Is the S&P 500 going higher?


I have your answer right here.


As I write this, if things stay the way they are right now, last week might be just the beginning.


Last week we saw some wild trading on Tuesday, Wednesday, Thursday, and Friday …


In the end, the S&P 500 was down on the week.


But what concerns me is that the indicators that factor into my traffic light are not waning. If anything, I am getting closer to a green light.


Take a look at VIX correlation to the S&P 500:


Since April expiration, the S&P 500 is — for all intents and purposes — flat, in spite of temporary bounces higher and lower.


Yet the VIX has been steadily increasing, and we have seen a VIX spike in the last few days as well …



This type of behavior points toward a VIX swell: a period of continuous volatility, more than just a simple spike that dissipates quickly …


Now take a look at the volatility of the VIX itself, it has SHOT higher:



Movement in the VIX has shot higher in the last couple of days, and does not appear to be slowing down. We could see realized volatility in the VIX run up to 300 when all is said and done.

What’s more, VVIX has broken out:


There is clear demand for VIX options, showing that the smart money is buying volatility protection right now …


The only Option Pit VIX Light indicator that is actually in “yellow” territory is the curve itself, which is in partial backwardation …



May futures only have two days to trade, but are trading below cash.


The rest of the curve however is still in a nice contango … so this is a yellow light for VIX futures curve, not green.


The main point is that I think we are going to see some serious market movement,  and if things stay as is, I will be flipping the light green tonight.


Your Only Option,



Mark Sebastian

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