Discussion
As discussed in last night’s (this morning’s) EOD update, event VOL is coming off sharply this morning in response to an in-line CPI report, and a sharp move lower in HY CDX confirms. I believe we have likely seen the lows for this correction until Powell on August 25, but it’s going to be choppy. The mechanical, VOL-flow fueled squeeze period is over, and bulls and bears are likely to be tested along the way into EOM. Then, as discussed ad nauseam, downside opens up into September/October.
I believe new bulls this morning will be tested here intra-day with a retest of yesterday’s lows, as discussed on the private WOTE feed pre-market. And as I type, VVIX has already started moving higher despite SPX and NDX at the HOD.
If and when the market tests the lows of yesterday, I think that low is to be bought in size as long as it’s confirmed by HY CDX. Best case scenario is a retest of lows with HY CDX red on the day. I will go long in extra size in that scenario.
Exhibits
Event VOL coming off this morning (though this is already old news, as VVIX is now down less than -2% on the day as I type).
And the sharp move lower in HY CDX confirms.