Stocks In A Box

And a measurable bid for tail protection

The Summer Chopfest for the S&P 500 and Nasdaq 100 show no signs of returning to the Big Beautiful Bull Market that arose from this year’s lows at the end of March.

But if we dial out to a weekly timeframe, both indices continue to look healthy and remain within about 5% of their all-time highs (tighter for SPX than NDX). So this may be nothing more than a period of rest and digestion before the next leg higher.

On the other hand, this last week was a little unsettling, with nine of our chosen 11 global equity indices printing red numbers and the Nasdaq 100 shedding more than 4% as the whole AI thing continues to be volatile. Chip stocks alone (SOXX) were down more than 10% for the week.

The volatility complex was also unsettled, with our composite VIX Mix collapsing from a bullish 73% down to a barely neutral 35%. On Friday, July 10th we had 14 of 17 Mix components on the bullish end of the spectrum while only one was bearish. Heading into the new week, we have a big fat zero in the green while nine are now bearish. That’s a significant shift in the wrong direction (unless you’re a short seller).

The adjustment to a more bearish sentiment was also enough to cause our VIX Mix trend line to turn down after a strong move from 40 to north of 60.

Checking on the VIX futures term structure, the most obvious change week-over-week was the nearly four-point jump in spot VIX. The July futures contract really had no chance to fight that move because it will expire this next Wednesday morning in sync with spot. That large move in 30-day implied volatility was enough to cause the entire term structure to lift and separate. Still in contango (bullish for risk assets) but the shift higher took some wind out of the short vol trade (see SVIX in the recap).

And it wasn’t just VIX that moved meaningfully higher. Two of the important volatility measures from Nations Indexes that we track are VOLI, at-the-money implied volatility for the S&P 500, and TailDex (TDEX), the cost of an SPX put option that is three standard deviations out of the money.

On average over time, VOLI will print about 14.5 while TDEX will come in at about 12.4 - so about a two-point premium for VOLI. But when markets get stressed out, the bid for tail protection will send TDEX to a premium over VOLI. You can see this in the chart below as recently as early March 2026 when the missiles started flying in the Middle east. While the far right of the chart appears relatively tame, we have just seen TDEX move to a premium over VOLI. That means that some number of investors (more likely traders) have been adding to their tail hedges.

So the weekly picture of important equity indices continues to look OK and the VIX futures term structure remains in contango. But the daily look for SPX and NDX is more fragile and the volatility complex is showing some cracks in sentiment. Some of this is undoubtedly a buildup of concern ahead of a string of critical earnings reports landing between now and the end of the month. As a reminder, we have Alphabet and Tesla on the 22nd, Intel and Texas Instruments on the 23rd, Microsoft and Meta on the 29th and then both Apple and Amazon on the 30th.

Hedging will no doubt increase as this slew of reports gets closer. What we can’t know is whether those hedges pay off big time or prove to be money flushed down the toilet. Most of the time, it’s the latter. Should you choose to play, please size your bets accordingly.

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