Weekly Wisdom: VIX Jump Stalls Santa Rally

Greetings fellow traders and welcome to your December 21st edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, December 18 – 22:

• Markets took a pause with the up move on Wednesday with the $VIX finally breaking to the upside after starting to show divergence last week with a solid $VVIX ignition candle showing up last Friday.  
• We saw $SPX and $VIX trade up together starting into the close on Tuesday and continuing throughout the first half of the day on Wednesday before markets finally rolled over in a bigger way.  
• Data for the week started on Monday with the NAHB Housing Market Index giving a beat at 37 vs 36 expected.
• Tuesday brought us building permits which were inline at 1.46 million and a beat for housing starts at 1.56 million vs 1.36 million expected.  
• Wednesday started off with a miss for the current account at -$200 billion vs -$197 billion expected. Later in the morning we saw beats for the Conference Board’s consumer confidence index at 110.7 vs 104.6 expected and existing home sales at 3.82 million vs 3.77 million expected.  
• Thursday’s weekly unemployment claims were a beat at 205,000 vs 214,000 expected. Final GDP q/q was a miss at 4.9% vs 5.2% expected and the final GDP price index q/q was a miss at 3.3% vs 3.6% expected. The Philly Fed manufacturing index was also a miss at -10.5 vs -3.3 expected.
• Friday, December 22 ends the week with the core PCE price index, personal income and personal spending, durable goods orders, and core durable goods orders all at 8:30 a.m. ET. We’ll then get the University of Michigan consumer sentiment and inflation expectations index, as well as new home sales at 10:00 a.m. ET.

Here’s what we are eyeing next week, December 25 – 29:

Level Highlights:

• $SPX futures finally saw some real selling take place on Wednesday with the help of the $VIX giving a real rally for the first time since mid-October. 
• We had been highlighting here last week that the $VIX was approaching major support in the 11 handle area and bulls should be careful chasing too much without tight stops below.
• Now that we’ve had at least the start of a washout, momentum has likely slowed down and markets may look to settle in into the end of the year.  
• $SPX futures made highs of 4830 on Wednesday before rolling over nearly 100 handles to make a low of 4743, following the script last week that $SPX is unlikely to push much past 4850 without a bigger fade lower.    
• Bulls are now trying to find some support at 4750, but 4700 and 4650 are better support levels below should some further selling take place into year end. 
• Bears should be targeting a $VIX breakout over 15.50 for the next leg of real selling to come – without that, we may see more choppy action than real selling into year end.

Upcoming News:

• Monday, December 25 markets are closed for Christmas. Happy Holidays! 
• Tuesday, December 26 is a quiet day for data post holiday. The update for the S&P/Case-Shiller home price index is released at 9:00 a.m. ET.  
• Wednesday, December 27 the Richmond manufacturing index is released at 10:00 a.m. ET.  
• Thursday, December 28 brings weekly unemployment claims, the goods trade balance, and preliminary wholesale inventories m/m at 8:30 a.m. ET. Later in the morning we’ll get pending home sales m/m at 10:00 a.m. ET. 
• Friday, December 29 ends the week with Chicago PMI at 9:45 a.m. ET.

Here’s Your Chart of the Week:

Via CNN Business: Markets are back in greed mode with the big 7 week rally that has taken place since the start of November. While there may be more to go on the upside, it may be hard to justify risk-reward on brand new long positions without a better pause in markets.

Source: https://www.cnn.com/markets/fear-and-greed

SPY Daily Update:

$SPY struggled to push past the 474 resistance highlighted last week and finally saw a candle with some real selling on Wednesday. Support levels nearby are 466, 462, and 460. 

SPY Weekly Update:

$SPY may finally see a red weekly candle after 7 very, very strong weeks in a row. This does not necessarily indicate further selling, but we may stall out a bit for the next week or two as we seem to be running into some overhead supply. 

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:27pm ET December 21, 2023

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