Market Analysis by covering: S&P 500, Cboe 1-Day Volatility Index. Read 's Market Analysis on Investing.com
Watch for resistance near the 6,600–6,650 levels, where mechanical buying may stall.fell by more than 2.7% on Friday, which came as a big surprise to many. While the size of the decline was certainly unexpected, the change in trend was not.
What’s important to note, however, is that one-day implied volatility, as measured by theIndex, rose sharply on Friday. That means there’s a good chance the S&P 500 could see a sizable rebound on Monday—at least to start the day—as volatility resets and the VIX 1-Day comes down. The logical place to find resistance on Monday would be around 6,600 and then 6,650. One would think that once the VIX 1-Day stabilizes, the stock market will also steady, and the rally would likely stall. A VIX 1-Day reading of 25.7 suggests a potential move in the S&P 500 of about 1.6%, which would take the index right up to the 6,650 region. The short-volatility metrics, however, matter less because if the S&P 500 rises by more than 1% on Monday, realized volatility will also increase. That likely means volatility-control funds will become more active as they begin unwinding some of their short-volatility/long-equity positions. In fact, one-month realized volatility rose above three-month realized volatility on Friday, which serves as a trigger point for vol-control funds to sell. Additionally, CTA flows have likely come into play and are now probably turning into sellers as the 20-day moving average trends lower. That means any morning buying could be met with afternoon selling. Obviously, things can always play out differently, but I think it’s important to frame that a rally to start on Monday is highly probable—and if it does occur, it will likely be the result of mechanical effects from volatility resets. Once we get past that mechanical reset, however, everything that led up to Friday’s sell-off remains largely unchanged. Dispersion is still high, correlations are still low, and the spread between index and constituent volatility remains elevated. That means there’s still risk as we head into earnings season, which really begins on Tuesday with the big banks, and a further unwind may be required. Clearly, a worst-case scenario would be if the index continues to decline—which is certainly possible. That would also imply the VIX 1-Day is still rising, putting us in a situation similar to April 2025 or March 2020, where the damage from Friday’s decline proved much deeper than usual. There’s really no better way to handicap it than that. Perhaps I’m just being overly granular about Monday’s open and trading dynamics, but I want to emphasize that, as of now, unless we see the 20-day moving average on the S&P 500 turn higher or realized volatility begin to drop, there’s a very high likelihood that systematic funds will be sellers. They don’t care about TACOs—they are rules-based, and those flows can have significant impacts on the market.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes.and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website. It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
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