CPI, Short Covering, FOMO - VIX & SPX Review 8/13/2022

After the CPI data release on Wednesday, the market (S&P 500) continued its uptrend by forming a large gap up. Short covering and Fear of Missing Out (FOMO) likely contributed to this rally somewhat.

VIX continued to decline with all the key VIX ratios down to the 20% percentile rank.

An interesting observation is an increase in VVIX. Likey some hedging action is going on due to the large advance in the price action.

Considering there is no FOMC meeting this month, it will be interesting to see how this FOMO (Fear of Missing Out) like price movement will last.

VIX Related Indices

The Percentile Rank (PR) of “VIX / VIX Related Index” ratios continued to decline as the market continued to move up. They are all down to 20% level.

The Percentile Rank (PR) of VIX indices are also all down to 20% level. A large spike in VIX is becoming less likley.

An interesting observation is an increase in VVIX. This means VIX options is becoming more expensive. It also means there is a higher expectation that there will be more valatility in VIX options.

It doesn’t mean the market will turn south though. Just an indication that more hedging with VIX options is happening as the market advances.

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

The VIX table for these calculations is now automated and available here.

VIX Ratio

VIX Indices

S&P 500 Technical Analysis

This is one of those typical “technical analysis doesn’t work” moments.

There are so many indications that the market is ripe for a downturn, yet, it just ripped through the roof and continued its advance up higher.

We now have two large gaps below us and the larger more recent gap should be filled at some point in the near future.

The other gap, not so sure about. It all depends on what the next FOMC meeting will bring us in September.

Historically, S&P 500 has a negative average return in September so would be useful to carry that narrative forward.

Personally, my plan is to ride the wave with small cap stocks using the Wheel Strategy and continue to trade VIX options.

As we can see from the second chart below (Russell 2000) is defying gravity. It is way off its uptrend line and just keeps going up.

SPX

RUT

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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.