Hot Inflation, Recession Is Coming – VIX & SPX Review 9/18/2022
CPI data released this week caused a massive drop in the stock market. On top of that, FedEx’s CEO commented about the upcoming recession, which again lowered the market.
From technical analysis speaking, the market is so volatile that it is extremely difficult to read it.
The fact that a short-term uptrend line and a short-term downtrend line were both broken one day after the other illustrates exactly that.
VIX Related Indices
The Percentile Rank (PR) of “VIX / VIX Related Index” ratios all shot up above 80% this week.
The Percentile Rank (PR) of VIX, VIX9D, VIX3M, and VIX6M also went up close to 70% level.
On Friday 9/16, VIX was up to 28 intra-day but ended the day at 26. SPX did recover towards the end of Friday but the lower VIX is also partially due to both it being the monthly options expiration day and it being Friday (VIX weekend effect).
If this was another day, VIX might have finished a little higher.
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.
S&P 500 Technical Analysis
The large volatile movements this week not only broke the secondary downtrend line (on Monday) and the secondary uptrend line (on Tuesday) but also created multiple gaps.
At this point, it is fair to say who knows which way the market will go next. The gap that was formed back in July located at the 3,800 level could be the next destination.
My Personal Thinking
Some analysts argue that the market will unlikely revisit the prior low since the CPI data we saw this last week would likely be the top of the inflation number.
Considering the Fed is raising interest rates so rapidly, the worst inflation number should be behind us.
I personally don’t really buy it because of the energy crisis happening in Europe and China is still enforcing lockdown due to COVID. There are still so many wild cards lying around that could cause the market to go lower.
Since it is very difficult to read which way the market will go next, I have stopped opening any SPX, SPY, or indices-related positions because these are directional trades in nature.
Instead, I have doubled down on the VIX options trades. I came to realize that even if the market keeps going down and VIX spikes, it is much easier to manage the VIX options positions and it is less stressful.
I will also shift my focus to single stocks because this market drop has created some really attractive opportunities.
For more details on what I am trading, please visit the 50K challenge page.
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.
- Thanks, FOMC Meeting. Here We Go Again –VIX & SPX Review 11/5/2022 - November 5, 2022
- The Market Bottom, For Now – VIX & SPX Review 10/23/2022 - October 23, 2022
- Wow, CPI Data Wild Ride! – VIX & SPX Review 10/16/2022 - October 16, 2022
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