This Tech Earnings Cycle is a mess

BY ANDREW GIOVINAZZI

July 28, 2024

Hey OP Crew,

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AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

Last Week:

“I expect VIX to back off somewhat on good earnings or more certainty on the election front. Judging from the ASML/TSM, perfect earnings out of the Great 8 are unlikely so QQQ stays soft. That gives us a choppy week so I will close any upside calls on sharp rallies as I don’t expect them to hold. The DNC is Aug19-22 so that is now a possible VIX event on the calendar right on VIX expiration. I expect a range of 14 to 18 this week for VIX.”

Well not too bad this week. The DNC anointed Kamala Harris to run for POTUS, Big Tech stayed soft of good but not perfect earnings so the Invesco QQQ Trust (Ticker: QQQ) touched the low $450s to record down almost 10% from the highs. I was able to close some VIX puts on the drop to the low 14s and close some VIX calls on the rally to 18+. I will give my prognostication an A for accuracy.

The DNC is moving quickly on Kamala so the election fight reoriented quickly. IMO it is likely JBiden will resign and Kamala will run as sitting President once the DNC is over. I put that at a 99 delta to happen. That is something to ask Frank about this week for his thoughts on the politics there. At the conference Frank discussed what the Kamala WH would look like and likely much the same as we have now.

The Big Tech Rally feels over for now. ChatGPT is launching a Google Search rival and I think that is the beginning of the end for the search hegemony for Alphabet Inc (Ticker: GOOGL). Earnings were good but not great with the current market valuation. That has been the Big Tech story so far. That is taking the top end market ripping rallies off the table for this week.

SPX daily price action over the last 30 days

SPX closed near the lower end of the week and back to where it started 1 month ago. The blowout rally on the promise of perfect Big Tech earnings did not materialize so stocks gave it right back. Perfectly normal action when 30%+ of the SPX is the Great 8.

SPX sigma (Vol per term average) levels over the last 30 days.

Sigma Vols close the week higher than the week before but well off the highs of the week. Basically folks are not looking for as big a move as they were before but my sense is this week took something off the top for a rally. Without pressing new lows this week, stocks are still resilient.

SPX realized volatility snap on Jul 26 2024

Realized vol for 10 days is up to 17.49%. The move traders were looking for finally kept up as we had a few 1%+ trading days and some solid up and down movement. I don’t expect this to end anytime soon. SPX went from a low volatility environment to mid level volatility environment on earnings dissapointment.

VIX Volatility Curves

This is my favorite comparison of the week. Even with all of the action Jul22 – Jul26 VIX ended the week slightly lower. This just reinforced my view that the volatility is from earnings disappointment as we are halfway through the cycle. Note the Election Bulge, Oct/Nov spread, got a bit bigger so using VIX curve as an election indicator the race got tighter.

Closing VIX curve, Jul 19 2024

Closing VIX cash and curve, Jul 26 2024

The VIX curve is backward in front and somewhat flat in Sep but the overall shape is still in contango so the market is seeing the recent volatility as a short term event. That could always change but for now the curves are pretty much the same week to week so expect the same kind of ranging trading action.

Basic Vol 101 on our Option Pit YouTube channel

OP VIX Zone Watch

VIX ZONE 1 9-13 We were here

VIX ZONE 2 13.01 TO 17.99 We are here

VIX ZONE 3 18-23.99 We did touch here

VIX ZONE 4 24<

VIX never touched Zone 1 this week but did touch Zone 3. So the market is still tending toward higher volatility not less volatility. I did get some decent VIX call and put closes in Weekly Profit Cycles.

VIX 30 day chart with 1 min candles

This week is the end of this Vol Cycle. Apple inc (Ticker: AAPL) and Microsoft Corp (Ticker: MSFT) are at the end of the Big Tech cycle so traders will either love them or hate them. AAPL has pulled a rabbit out of the hat now for the last 3 months so it is possible there is one more. I am still in the sharp rally mode with Weekly Profit Cycles positions.Either way because of the declining VIX this week, earnings and any Fed news should be a mid week VIX catalyst followed by lower VIX Friday into the 2nd week of August.

Weekly Profit Cycles is opening for a quarterly subscription if you want to learn to trade VIX/SPY exclusively. I am 19 wins for last 25 opens in WPC. So getting paid to own SPY puts in an up market is something anyone can learn to do.

To Your Trading Success,

-AG