As I discussed in my last post “why I started trading VIX options again”, I explained some of the tools that I use to monitor the market.
At the time of writing that post (6/4), the market was moving sideways yet the Percentage Rank of VIX3M and VVIX were still above 70%.
Since then, it became clear that it was the beginning of another wild downturn and here we are, a day before the FOMC meeting with VIX spiking up to around 33.
All the VIX products-related indicators that I track are in the 90 percentile as a result (table below).
However, one thing I noticed today was that as the SPX declined further, VIX did not move much and even retreated a bit.
This could indicate that people think whatever is going to be announced tomorrow by the Fed Chairman is already priced in the market and no further hedging is required.
If everything goes well, VIX should either stay high and goes a little higher (if the announcement is unfavorable to the market) after the announcement, then go lower the following day, or, if the news is good, VIX could go significantly lower right away (if the market rallies).
Either way, VIX will very unlikely to stay where it is for a long time unless there is another news announcement that could cause VIX to stay at this level or go higher.
The market internals ($VOLD & $ADD) show a much less aggressive move today compared to yesterday and the day before. All three major indices were moving sideways today.
My bias is it’s not going to go lower and possibly stay the same or higher, but who knows, the market will do what it wants.