The S&P 500 has been staying above the 2350 support level for a while, This has pushed the index outside of its downward trading channel. Meanwhile, volatility has increased at a reasonable pace.
There are a number of support levels of interest for the S&P 500. Firs, there is the 2350 level which has been in play a lot lately. Then there appears to be support at roughly 2336 and 2322. The index could bounce off of either of those levels.
I am not seeing any signals of topping yet. However the market does seem increasingly uncertain about the future. This is clearly showing up in the VIX.
As of 8:30am, VIX was closing in on its 161.8% retracement level, based on a Fibonacci retracement analysis between 10.88 and 13.24. It would take a lot of momentum for VIX to push above that level and move higher. I am not seeing that in the VIX term structure, as backwardation is mainly occurring because F2 is quite low, rather than because F1 is so high. Still, F2-F3 contango has decreased over the last week or so. Looking at VIXY, premarket trading has the ETF pushing towards the 100% retracement level from $12.74 to $14.66. Again, to push higher would require significant backwardation, and the front month futures contract that is really pushing VIXY higher expires in one week.
I would not yet consider this a huge volatility buying opportunity. Better than expected earnings could subdue the market’s fear. But it might not be a great time to double down in XIV either. The strategy if just letting VIX fade could be in trouble, so I would suggest volatility traders take extra time to identify profitable trades.