Market Near Prior Low, Feels Like deja vu - VIX & SPX Review 10/7/2022

The market ended lower just like last Friday indeed makes it feels like deja vu. VIX9D is yet again lower than VIX just like last Friday also.

The better-than-expected Job data on Friday was the main cause of the market decline. Core CPI data for September will come out next week so market volatility is likely to continue.

The continual elevated VIX is also partially due to the potential nuclear war threat.

VIX Related Indices

VIX9D dropped below VIX for the second time since early September (first table below).

Considering

this is the second time it is happening on Friday,
the last time it happened, subsequently, VIX9D went above VIX on Monday and continued higher throughout the week.

one would think the VIX weekend effects likely are responsible for this but looking back at earlier Fridays in September, VIX 9D was higher than VIX on both 9/16 and 9/23 (second table below).

While this does not necessarily mean the market will go up, it shows shorter terms hedging is now less extreme than in mid-September.

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.

S&P 500 Technical Analysis

There continue to have 3 large gaps above the current level and a large space is still in place between the 25 Days Moving Average line and where SPX is on Friday. This feels Like deja vu because it is so similar to what happened last Friday.

We are now much closer to the secondary downtrend line (green line) and have the core CPI data coming out next week. The market should consolidate at the current level until the data comes out.

This doesn’t mean the range of the move will be small based on the current VIX level. The volatile moves will likely continue next week.

If the data shows inflation is going lower, the market could break out upward on the secondary downtrend line next week.

My Personal Thinking

There are some indications that the rate hike is starting to show some effects, such as a significant decline in container freight rates and job opening starts to decline. Obviously, these separate numbers may not get translated to the core CPI data directly, but they are a good indication that inflation should start to slow down at least.

It’s interesting to see the market did not revisit the last week’s low and it is starting to form a higher low. Coupling that with VIX9D being lower than VIX, even with the VIX weekend effects, it feels like the market is telling us something…..

The Russia / Ukraine war remains to be a wild card. The elevated VIX level for sure is partially due to that and not entirely just the inflation issue.

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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.