Keep On Smilin'
More of the "Don't Worry, Be Happy" regime
You’ll need to cut me some slack this weekend. I’m still recuperating from three days in Seattle for the Basis Northwest conference hosted by Tax Alpha Insider. Brent’s germ of an idea that there should be a conference devoted to tax aware investing exploded into a nerd version of Woodstock with ~350 attendees going deep on topics like concentrated stock, 351 exchange funds, long/short direct indexing, opportunity zones and how to combine solutions to solve gnarly tax problems. And you couldn’t have known that the Vixologist himself would be one of four experts on stage extolling the virtues of Private Placement Life Insurance.
At least I picked a good week when all measures of market behavior were supporting continued stability and a tailwind for short vol/long risk assets. China was the only one of our 11 equity indices to show a red mark for the week. Fixed income was also feeling the love as interest rates pulled back enough to show green across the Agg, Treasuries and corporates. Pity any fools who had a bearish view on volatility as the play was on the short side with SVIX adding almost 9%.
One look at the week over week change to spot VIX and the VIX futures term structure and it’s easy to see why short vol was the place to be. The curve dropped from front to back with the short end chasing the drop in spot. The futures finished the week with more than five points of spread between low and high - very solid contango and representative of conditions that tend to persist. Nasty surprises are very rare when the term structure looks like this.
The VIX Mix has moved all the way into the greenest slice of our composite gauge with a reading of 82% and 15 of 17 component indicators also bullish.
That makes six green bars in a row, as shown below, and has taken both the latest reading and the MA 10 trend line to new highs for 2026.
With everything so rosy, we continue to monitor the compressed condition of the VIX. It’s interesting to note that the ongoing daily drip lower has actually reached a point where it has begun to expand the range (wider Bollinger Bands and an uptick in standard deviation). This the benign way in which a “squeeze” can be unwound. Vol nerds will be interested in what the coming week holds in store.
Some of you may think the markets will run out of oxygen at some point. As shown below, the S&P 500 is at the top of its Keltner Channels while two measures of trend strength are moving sideways. We can’t be surprised if there’s a pause to refresh, but I don’t see any signs of impending doom or a volatility surge. That will change, of course, but the bulls remain behind the wheel for the time being. And therefore, you may want to just Keep on Smilin' with the boys from Wet Willie.
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I covered the expansion from compression in my vid this week and how it currently looks like the compression is "resolving" to the downside. You can hear the heads scratching from here!