Boooring!!!!!!!!

We are not amused

Maybe it’s just me, but I’m getting tired of stocks in a box. The S&P 500 opened higher yesterday, sold off pretty hard and then rallied back to cut the loss to about 50 basis points. This morning’s early look is no better with the SPX futures in the red after getting green overnight. It could be that markets are just flushing out the remaining weak hands before breaking out to the upside. Or just waiting on CPI tomorrow and the Federal Reserve next week. All I know is that we’re still stuck in the damn box for now. 😒

Yesterday’s action saw the VIX Mix retreat three points. One bullish component and nine still bearish.

Stocks in a box can be seen as Mix in a box as well. Will we get back to green sometime soon? Stay in neutral for a while? Or slide back into the red?

One element of the volatility complex that continues to misbehave is the spread between VIX and VOLI. As a reminder, the calculation of VIX comes from prices of a wide range of SPX put and call options, including those significantly out of the money. VOLI uses only at-the-money options. So the spread between the two reflects the impact of out-of-the-money options on the VIX calculation. A wider VIX-VOLI spread says that traders are paying up for OTM puts and calls - speculating on a bigger moves in volatility. The chart below shows that the spread moved north of the long-term average (red line at the bottom) with the July/August spike last year and has remained elevated. This suggests that some meaningful cohort of investors is looking for more volatility “episodes.”

My day-trading buddies are having fun in this environment. Dip buyers are experiencing some frustration. My systematic models continue to favor equities with an international tilt. A neutral VIX Mix is indecisive. Sorry about that. But don’t worry. Things will change. Likely sometime soon.

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