Market Journal: Mid-Day Update

That might have been it for downside until Powell on August 25.

Discussion

Pretty panicky move this morning in VVIX, up over 11% on the day right into that classic 11am to 12pm bottoming hour. And HY CDX really didn’t confirm the mini-whoosh lower, up less than 4 bps on the day. Defensive sectors were bid all morning, foreshadowing the 10-11:30 whoosh, but now those are starting to come off while NDX attracts a bid.

“Vanna and charm” flows are in play this week, and like yesterday they should start driving the market higher here throughout the course of the day.

There will be trading opportunities into Powell on August 25, but after this big reach for downside protection this morning I think markets are overly hedged heading into what is likely to be a soft Core CPI print followed up by the Fed confirming it’s likely done hiking for the cycle.

Perfect set-up for one last push higher.

Exhibits

HY CDX not confirming the 11am to 12pm mini-whoosh lower.

Move in VVIX indicates the market is panicking for downside protection ahead of a likely soft Core CPI print and dovish FED heading into Powell on August 25.

Defensive sector relative strength starting to flag, which typically occurs toward the end of a move.