Something broke in the market today. Volatility futures flipped into backwardation for the second Friday in a row.
The S&P 500 slipped about 35 handles in one of the calmest sessions of the week. The volatility curve says real risk is sitting right on top of us.
November volatility futures sit at 19.75. December sits at 19.55.
More time normally means more risk. This curve prices more danger in the next 26 days than in the next 54.
The VVIX sees it too. It cracked to 120 last Friday during heavy selling, then started flying again today on a slow drift lower.
Then the advance decline line snapped. At the open, only 12 stocks in the S&P 100 traded higher against roughly 88 lower.
Traders had spent the week dumping semiconductors for bonds, consumer staples, and healthcare. Today those hiding spots sold off too.
The S&P 500 is up 11% year to date. Semiconductors built that gain, with SMH up 41%.
I expected a big bounce in the chips today. It never came.
Implied volatility in semiconductors is creeping higher with no panic spike behind it. Semiconductors aren’t done selling.
The election isn’t driving this. S&P volatility priced out to the election looks normal.
Oil pushed to $103 and change today. Next week brings the Fed and earnings from Apple, Google, and Microsoft.
I don’t see the Fed raising rates with oil at $103. A big earnings miss or a capex cut could turn this market ugly fast.
In tonight’s video, I walk through the levels and setups I’m watching into next week:
- NASDAQ futures (/NQ) have spent six months between 29,000 and 31,500. They tested 29,000 this morning, and a clean break below that level brings fireworks.
- The S&P 500 has traded between 7,400 and 7,800 for six months. The index hasn’t taken the brunt of the selling yet.
- I won’t short semiconductors into the hole. A bounce in SMH back to 570 is where I’d get short, with 500 sitting in no man’s land.
- The SPX priced a $165 expected move this week and finished only mildly lower. The 7 day options still price almost $160 for next week.
A quiet week followed by the same heavy volatility pricing tells me to buckle up. Volatility is here, and next week is where it shows up.
