Are We Going Lower? VIX9D Says Unlikely - VIX & SPX Review 10/2/2022

The market consolidated near the June low for a few days then on Friday SPX and NDX penetrated the 100% Fibonacci Retracement line (1st and 2nd graphs below).

RUT touched the 100% retracement line earlier in the week but not on Friday (3rd image below).

While penetrating the 100% Fibonacci Retracement line is very bearish, VIX9d seems to be claiming down.

The PCE (Personal Consumption Expenditures Price Index) data that came out on Friday was the August data. Hence, there was no surprise that the August PCE number was high just like the PMI data that came out a few weeks earlier, which was also the August data.

The unemployment data on Thursday was better than expected which seems to have caused the market to react negatively.

VIX Related Indices

The Percentile Rank (PR) of “VIX / VIX Related Index” ratios all remained higher than 80% except VIX9D:VIX ratio. (1st image below).

VIX9D dropped below VIX for the first time since early September.

Even though the value of both VIX and VIX9D is higher than 30, the fact that VIX9D is now lower than VIX could indicate a calmer market in October.

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

VVIX also jumped significantly this week, which means the VIX options are more expensive so more premium to sell (more profit) if you are shorting the VIX options.

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.

Even though VIX9D is now lower than VIX, the VIX futures term structure is still 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

There are 3 large gaps above the current level and a large space is now in place between the 25 Days Moving Average line and where SPX was on Friday.

Any slight good news or news that can be interpreted positively for the market (note: strong economy data right now means higher inflation and is bad for the market, so something opposite to that) will likely cause the market to shoot up.

There is still a strong chance that SPX will go above the 100% Fibonacci Retracement line next week since it is not uncommon for the market to penetrate a support or resistance line for a few days and go right back, especially so in the current volatile market.

My Personal Thinking

I am watching carefully all the VIX-related indices since I doubled down on shorting the VIX options and decided to not open any directional or hedging trades with SPX or SPY.

The average beta weighted value of my trading account is now well over 100 so the further market decline is obviously not ideal for my account.

While it is difficult to be objective when looking at the market (you can probably tell my tone is somewhat bullish), October on average is a positive month for S&P 500.

Couple that historical data and seeing VIX9D is now lower than VIX on Friday (obviously the VIX weekend effects could be in play but the VIX9D value was higher than VIX for a few Fridays in September), to me, the market should start to calm down somewhat in the coming weeks.

Unless of course, there is always a possibility that geo-political issues could cause another VIX spike.

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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.