Market On Open, Wednesday 12 June

Market On Open, Wednesday 12 June
Photo by Bee Felten-Leidel / Unsplash

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Very Witchity Indeed

by Alex King

Well, today may not be your classical Triple Witching day but it is likely to be very witchity indeed if you ask me. We have a CPI print at 0830 Eastern and then a Powell-fest in the afternoon following FOMC. A double whammy. A 1-2 punch. Double shot. And so on.

The strange thing is, here’s what the Vix looks like right now. (If you don’t understand what the Vix measures, fear not, neither do most people who trade it. But our own Options Master Jay Urbain can tell you a shorthand version: demand for S&P500 puts. If puts are in demand, the Vix is up. If demand for puts is falling, the Vix is down. Learn more from Jay, particularly on how to trade options more like a market-maker and less like Chad, here).

This look like a lot of demand for S&P500 puts to you?

Me either.

How about the Vix For Grownups aka the MOVE Index? A measure of bond volatility. If MOVE climbing, probably equities falling, and vice versa, at least if you zoom out some. Full page version, here.

Hm. Not so scary either.

Now this isn’t normal. Remember that in securities markets, Every Day Is Opposite Day. So in general, witchity days play out like this - volatility is elevated somewhat into the event, because puts. Then comes the print - in this case CPI - and/or the Sermon Handed Down From The Gods, in this case from Chairman Powell during the press conference. Then the market swings thisaway and thataway before setting off on the direction it always intended to, save only for the time-honored sport of seal-tossing to ruin a few poors along the way. If the direction is up, you see a volatility crush - Vix plummets. If down, volatility explodes from an already elevated position. It’s weird to see the Vix and the MOVE suppressed heading into the event.

From this I conclude that, as always in securities markets, one should react to events not predict them. Because unless you are sat in the heart of Mission Control, you cannot know which direction the market will pick; you can only watch what happens and react accordingly. The way to be consistently successful in investing and trading is not, in my view, to correctly call the play - that’s impossible on any sustained basis. The route to consistent success is to spot the play before you, and then quickly align your positioning to that play. See which way bigs are running, then make sure you run in the same direction, just a little bit behind, so you can see when they start to change direction. Never get in front of a group of bigs, for they will trample you and not even notice that they did so.

So, if holding long profits one wishes to protect, hedging them on the way into the event is prudent; if, as in our Inner Circle service, you use long / short ETFs to trade, then it’s easy to hedge (ie. suspend time) then over-hedge in the direction the market picks, once the market picks it. Market dumps? Over-hedge short. Moons? Long. And so on. We teach this method all day long in our Slack environment and we post trade alerts whenever Cestrian staff personal accounts place trades in these ETFs.

For now let’s check in on where markets stand. In pre-market hours at the time of writing (around 0745 Eastern), the dollar is down some, yields down a touch and equities up a little. As always in our regular charts below we place the current price in an overall structure to help make sense of where price may be going in stocks, bonds, oil and more. So - read on!

Short- And Medium-Term Market Analysis