{"id":18492,"date":"2021-06-04T07:30:32","date_gmt":"2021-06-04T11:30:32","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=18492"},"modified":"2021-06-04T07:30:32","modified_gmt":"2021-06-04T11:30:32","slug":"the-crystal-ball-is-warning-of-a-fall","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-crystal-ball-is-warning-of-a-fall\/","title":{"rendered":"The Crystal Ball Is Warning of a Fall"},"content":{"rendered":"

This morning’s release of the non-farm payrolls report is likely to cause a big move in the stock market.<\/p>\n

That shouldn’t be too much of a surprise. The market is often volatile<\/a> following the monthly jobs report. This month, though, stocks seem to be set up for a much larger move.<\/p>\n

You see, for the past two weeks the S&P 500 has been stuck near the 4200 level.<\/p>\n

Oh sure, we’ve been a little bit higher and a little bit lower. For the most part, though, the index hasn’t done anything for two weeks.<\/p>\n

So, there’s lots of energy stored up to fuel a big move…<\/p>\n

Look at this 15-minute chart of the S&P 500…<\/p>\n

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After a great deal of volatility during the first three weeks of May, the index has been range-bound for the past two weeks. It needs some sort of catalyst to break out of this range, and I suspect today’s jobs report will do the trick.<\/p>\n

The question, of course is… Which way will it go?<\/p>\n

The crystal ball says we’ll go lower from here.<\/p>\n

Let me explain…<\/p>\n

Long-time readers know about the predictive power of VIX<\/a> option prices. We’ve used extreme deviations in option prices before as a sort of “crystal ball” for the immediate direction of the stock market.<\/p>\n\n\n\n
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Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

In fact, the last time we peered into the crystal ball was in late January<\/a>. VIX option prices were warning of an impending decline. One week later the S&P 500 was 150 points lower.<\/p>\n

We have the same sort of setup today…<\/p>\n

On Wednesday, the VIX closed at 17.50. At that level, the VIX June 16 $18 puts were $0.50 in the money<\/a>. And, they were trading for $1.00.<\/p>\n

At the same time, the VIX June 16 $18 calls were $0.50 out of the money<\/a>. Yet they were trading for $2.00.<\/p>\n

In other words, traders were willing to pay 100% more for a VIX call option<\/a> that was out of the money than for a VIX put option<\/a> that was $0.50 in the money. This tells us that traders who are making bets on the VIX expect the index to move higher over the next two weeks.<\/p>\n

This sentiment is even more evident if we go out a little further and compare the VIX July 21 $18 calls with the VIX July 21 $18 puts. The calls closed Wednesday at $4.40, while the puts were only $1.25.<\/p>\n

VIX calls are far more expensive than the equivalent put options.<\/p>\n

Traders clearly expect the index to move sharply higher between now and late July. And, a rising VIX usually goes along with a falling stock market.<\/p>\n

And, today’s jobs report could be the catalyst that sets that decline in motion.<\/p>\n

Best regards and good trading,<\/p>\n

<\/p>\n

Jeff Clark<\/p>\n

P.S.<\/strong> Every week, my colleague Eoin Treacy takes some time to share his musings on the current goings-on in the markets. So far, he’s discussed the rally in gold<\/a>, bitcoin<\/a>, and inflation<\/a>.<\/p>\n

Today, he’s sharing more on what’s been going on this week. So, click down below to hear Eoin’s thoughts.<\/p>\n

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Eoin’s Insights<\/strong><\/h2>\n

Happy Friday Market Minute<\/em> readers. Here’s another short clip of my weekly series where I talk about what’s happening in the markets.<\/p>\n

Join me today as I talk about what the Fed is doing, the dollar, and a potential answer to where the next round of stimulus will come from. Just click below to watch. <\/p>\n

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