How Talk of Nuclear War Affected Trading This Week
A close above 13 would be a negative sign from VIX, in our opinion.
The other volatility indices jumped higher, too, but the term structure continues to slope upwards at this point, so that part of the “equation” is still bullish.
The premium on the VIX futures has shrunk dramatically already, though.
That is exactly what happened on the 43-point down day we had two months ago.
It was a correct “prediction” by the futures market at that time – that is, the quick discount move by the VIX futures was a sign that the market was going to quickly recover. Perhaps things are similar now.
What always worries me about that particular scenario, though, is what happens if the futures traders are wrong and the market plunges seriously from here?
It should present some interesting hedging opportunities at the very least. In summary, if this news forces SPX to close below 2460, we likely will be into the correction that the market has avoided for so long.
Otherwise, it will merely be another minor pullback within the ongoing bull trend.
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