Almost Hit The Bottom Again, Now What? - VIX & SPX Review 9/24/2022

The FOMC meeting on Wednesday sent the market tumbling. It kept dropping and almost hit the June low on Friday.

The market seems oversold and multiple gaps were formed as it went down. Technically speaking, we will likely see some kind of bounce soon.

VIX Related Indices

The Percentile Rank (PR) of “VIX / VIX Related Index” ratios all shot up above 80% this week at one point or the other (1st image below).

Interesting to see the VIX9D:VIX ratio decrease to 70% on Thursday and Friday. It indicates VIX9D is not increasing at the same rate as VIX so the market should calm down somewhat from here.

The Percentile Rank (PR) of VIX, VIX9D, VIX3M, and VIX6M all increased significantly. VIX3M and VIX6M are now above 80% (2nd image below).

In case you are interested, here is more information about why it’s a good idea to monitor these VIX indices.

The automated VIX table for these calculations is available here.

The VIX futures term structure is now in backwardation (3rd image below). Be very careful if you are shorting VIX-related ETPs such as VXX and UVXY.

S&P 500 Technical Analysis

The 3,800 level gap formed back in July was filled this week. Three gaps were formed as the market dropped lower.

Considering the velocity of the drop, the market should take a break and go sideways or recover a bit.

If the market starts going sideways, it will hit the secondary downtrend line in mid-October. The next CPI number is on October 13th, so around the same time.

Historically speaking, October on average is a positive month for S&P 500. Not saying the market will go up in October, but, the market may not keep dropping much from here.

My Personal Thinking

Since I doubled down on shorting the VIX options, I had to play defense due to a large spike in VIX.

This was not as stressful as I thought it would be because unlike the 2008 financial crisis or the 2020 Coronavirus, the event we are experiencing is a “known event” so even though the market declined substantially, VIX did not spike as high as those two other events.

In fact, the VIX spike was even less than when Russia invited Ukraine earlier this year.

I kept myself on the sideline and did not trade any SPX or SPY indices, which was very hard to do because shorting SPY would have been very profitable.

Instead, this allowed me to look for other opportunities such as this one that is much better than a simple SPY directional trade in my opinion.

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Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.