Weekly post:
The VIX edged higher by +0.5 points this morning. The very first thing to decide when sitting in front of the screen is why.
If the VIX is rising because investors are actually selling stocks, then ES will open around 7710-7720 today (i.e. lower). This is the more dangerous scenario, because we are close to the edge of the abyss.
If the SPX does not fall (opens around 7740) but the VIX is still higher, it means nobody is panicking — they are simply buying insurance ahead of tomorrow’s Fed minutes. (The first half-hour of trading will give the answer.)
VIX dealers will be buying futures, which in the current correlation has a relatively moderate effect, but creates convexity to the downside.
The trapdoor remains at 7635/50.
Today neither the VIX can spike (it’s pinned between 15.5–16.3) nor can the SPX break down. The two markets are perfectly neutralizing each other. Even if the VIX pushes above 16.3, its impact on the SPX remains limited.
Let’s look at today’s positioning…
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