Inside Markets — Rising VIX
Rising VIX
July 24, 2024
This week’s slate of macro reports and ramp in Q2 earnings season was expected to provide incremental direction for equity markets. On Monday, we discussed the potential for a bullish scenario where inline macro data and continued earnings strength could produce an ‘everything rally’ (improved market breadth). The Goldilocks narrative that prevailed for the last two months included resilient growth, rising earnings estimates and rate cuts. While it’s still early, week-to-date trends point to slowing growth, unchanged earnings estimates and Fed rate cuts. Unfortunately, the beginning of past Fed easing cycles in response to weaker growth has NOT been a tailwind for equity markets.
The CBOE Volatility Index (VIX) is higher this morning and currently sits at 17.95. A prolonged period of subdued realized volatility (below 20) starting in November has driven a higher forward earnings multiple. VIX levels above ~20 generally become a headwind for rally attempts. VIX levels north of ~30 tend to align with equity corrections in the 7%-18% range. Once the VIX gets above 30, it often takes months to return to subdued/supportive levels below 20.
The SPX keeps its bullish bias at levels above ~5375 (June 12 upside gap) and pullbacks should first be considered buying opportunities unless/until it breaks. However, a sustained close below the 50-day moving average of ~5428 would likely generate increased selling momentum. The NDX is currently trading below key technical support at ~19210. Sustained closing levels below ~19210 would signal a change in trend and generate additional downside to ~18415. The Philadelphia Semiconductor Index (SOX) is also currently trading below technical support levels near ~5220 with a sustained break marking an intermediate change in trend.
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