It is said that a bull market climbs a Wall of Worry. In the modern context, this statement remains true of course, but also encompasses $VIX. In the past weeks, we have published a few articles detailing just how many articles are circulating in the financial media about the forthcoming $VIX explosion. That hasn’t happened yet, by the way, and probably won’t until people get more complacent about the current price of $VIX (and the stock market, as well). Of course, the Wall of Worry extends to other sectors of the market.
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As we’ve been commenting for a couple of months now, “everyone” is expecting a rise in $VIX. In classic stock market contrarian fashion, $VIX has steadfastly remained at low levels – countering the majority opinion and frustrating volatility bulls. That would include us, to some extent, although it is not surprising to me to see the market act in a way that causes the majority to be wrong. That was our point in the article we wrote in last week’s newsletter.
Stocks continue to slip after having made new all-time highs on August 14th. The 7600 support level for $SPX has now come under attack, and it was briefly violated yesterday. Today, however, the CPI number although "in line" was interpreted as a huge relief, and the market is rallying strongly. So support extends down to 7580 or so. The general support area is now 7580 7620.
After making new all-time highs on August 14th, $SPX has struggled a bit. There is a very minor downtrend line on the chart right now, after a series of negative days accompanied in general by terrible breadth. That pullback seems to have culminated with a retest of the 7600-7620 support level this past Tuesday, September 1st. That support level is marked with a thick red horizontal line on the $SPX chart in Figure 1. If it gives way, a much more negative picture will emerge, but so far support has held.
Traders were a bit leery of some potentially volatile events this week, but so far they have not proven to be troublesome. The NVIDIA (NVDA) earnings were positive, and the stock rose. That was a relief to the market. Also, Fed Chair Warsh made the Keynote Address at the Jackson Hole Monetary conference this morning. The market's reaction is muted.
Yesterday, I joined the team at tastylive for a conversation about the current market, some of the strategies I’m trading today, and how my approach to options has evolved over the years.
McMillan has joined INVST — and the research, advisories, data, and market analysis you rely on will continue.
We recently announced an important new chapter in McMillan’s history: INVST has acquired McMillan. For our longtime subscribers, customers, and readers, we want to start with the most important point:
McMillan isn’t going away.
We have been cautioning about a potential increase in implied volatility ($VIX) for some time. However, $VIX has essentially refused to move higher. In fact, it’s in a distinct downtrend ever since $SPX began the latest rally from about the 7300 level. We are not alone in our opinion, which is perhaps one reason why volatility has remained low: “everyone” is all set with long $VIX calls or long $SPX puts, waiting for the volatility explosion, and the majority is often wrong.
A little more than a week ago, the FOMC meeting concluded (on July 29th), and traders were not happy. They sold the market before and after the meeting, closing $SPX that day at 7316. But then a series of events both real and psychological took place that released a buying panic.
