Weekly Wisdom: VVIX Divergence Plays Out With Hot CPI

Greetings fellow traders and welcome to your February 15th 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.

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Taking a look back on this week, February 12 - 16:

• Markets made a move lower this week on Tuesday as we saw a hotter CPI than expected, which once again pushes back the aggressive rate cuts the Fed futures market had been pricing in, lowering the odds of a rate cut in March.??
• $SPX futures trade down from a high of 5040 to a low of 4936 on Tuesday with the hot CPI report.??
• However, bulls are still here making a stand, with $SPX futures bouncing all the way back to highs of 5029 on Thursday just two days later.??
• Data for the week began on Monday with the federal budget balance coming in at -$21.9 billion vs -$39.3 billion expected.??
• Tuesday was the big data day with the latest CPI reports. Headline CPI y/y came in hotter than expected at 3.1% vs 2.9% expected. CPI m/m was also hot at 0.3% vs 0.2% expected. Core CPI m/m was at 0.4% vs 0.3% expected while core CPI y/y came in at 3.9% vs 3.7% expected.??
• Thursday brought us multiple data points as well, beginning with weekly unemployment claims at 212,000 vs 219,000 expected. Retail sales was a miss at -0.8% vs -0.3% expected, with core retail sales also missing at -0.6% vs 0.2% expected. The Empire State manufacturing index was a beat at -2.4 vs -13.7 expected, with the Philly Fed manufacturing index also beating at 5.2 vs -8.0 expected. Import prices m/m came in at 0.8% vs 0.0% expected. The industrial production m/m missed at -0.1% vs 0.2% expected, with capacity utilization rate also missing at 78.5% vs 78.8% expected. Business inventories m/m was in-line at 0.4%. The NAHB Housing Market Index was a beat at 48 vs 46 expected.??
• Friday, February 16 ends the week with PPI, core PPI, building permits, and housing starts at 8:30 a.m. ET. We’ll then get the University of Michigan consumer sentiment and inflation expectations index at 10:00 a.m. ET.

Here's what we are eyeing next week, February 19 - 23:

Level Highlights:

• $SPX futures were hit lower on Tuesday with the hot CPI, but have since retraced and fully negated that down move.??
• Tuesday’s move lower also resulted in the $VVIX divergence that began to form last week playing out, with the $VVIX trading up through the 90 level given last week to a high of 101.46 on Tuesday.??
• The $VIX also broke higher on Tuesday, trading up through the 14.50 level to a high of just under 18.
• Both the $VIX and $VVIX rolled back over that same day and are now back down to the same area they were trading at prior to CPI, with that divergence now fully played out.??
• Market participants should keep watching 4975 on $SPX as a potential momentum break level, which was lost on Tuesday but Tuesday’s actual close was right at this level, and was then held on Wednesday.??
• Bulls continue to stay in charge, but did find some selling above 5050 before the CPI report and may want to be cautious pressing long bets over that level.?

Upcoming News:

• Monday, February 19 markets are closed in observance of President’s Day.
• Tuesday, February 20 brings us the Conference Board's leading economic index at 10:00 a.m. ET.??
• Wednesday, February 21 we’ll see FOMC meeting minutes at 2:00 p.m. ET.
• Thursday, February 22 we’ll get weekly unemployment claims at 8:30 a.m. ET. This is followed by flash manufacturing PMI and flash services PMI at 9:45 a.m. ET. We’ll then see existing home sales at 10:00 a.m. ET.?
• Friday, February 23 ends the week with the Fed monetary policy report.?

Here's Your Chart of the Week:

Via DB: Share of top 5 cos. by market cap in S&P 500. Top 5 annotated through history.

Source

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SPY Daily Update:

$SPY had a sizable gap down Tuesday morning on the hotter than expected CPI report - however as you can see, bulls are bouncing us right back up and have negated that CPI move with $SPY back over 500 and closing the gap.

SPY Weekly Update:

$SPY weekly candle opened at 501.17 - should $SPY close over that level on Friday, that will make for 16 green weeks of the last 17 - an extremely impressive run!

Want to Trade With My Team? Click here!

-Patrick Hawe

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Disclosures

Patrick Hawe's current positions:

*As of 2:17pm ET? February 15, 2024

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