The VIX Pinning Effects May Soon Be Behind Us
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The S&P 500 finished the day lower, falling by around 40 bps. It looked like the market did its best to keep the VIX from going below 18 today. Tomorrow morning will be the VIX opex, and that will be that, and the pin at 18 will be no more. The VIX has been mean-reverting to 18 every day since getting there last Monday.
In the meantime, the 30-year Treasury rose by six bps to 4.97%. The big question is whether we are going to finally crack 5% and really make a meaningful move higher. Technically speaking, I could make a strong argument for a 30-year Treasury between 5.25% and 5.5%. Fundamentally, I could make a strong argument for rates being much higher than that.
The 30-year minus the 3-month rose to 60 bps today, and if we break through the level of resistance, the 30-year rate could go much higher because there is not much resistance. The question ultimately is how wide this spread gets. If the economy doesn’t head to recession, and the 3-month settles around 3%, the 30-year rate could be much higher over time. Since 1988, the 30-year typically tops out around 4.5% higher than the 3-month rate. You can do the math.
It will be interesting to see how and if the BOJ responds to the rapid rise in long-end rates in Japan, with the 30-year JGB rising by 12 bps yesterday to 3.09%.
Finally, we have the 10-day EMA, the 200-day SMA, technical support at 5,900, the 78.6 retracement level, along with an uptrend in the S&P 500 futures, all in play here. I’d imagine that if this 5,900 level break were to occur, we could see that gap fill on the ES at 5,685 within a few days.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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