S&P 500 Sets Sights on 4200 as Volatility Eases: What to Expect Next
Michael Kramer | Oct 31, 2023 07:27
The S&P 500 finished higher, as rates rose modestly, and the dollar and the VIX fell. Today will be when the excitement starts, with the Bank of Japan policy decision keeping rates stable as expected, followed by a slew of economic data for the rest of the week and a Fed meeting and press conference on Wednesday.
This seems to be a recurring theme, with Treasury rates moving lower and the VIX moving higher on Friday into the weekend, and that unwinding some on Monday. Given everything happening in the world, it certainly makes sense to see this, making it hard to assess what is happening in the market today.
h2 VIX Could Spike as Week Unfolds/h2The VIX dropped from 21.3 to 19.7 today. It seems hard to imagine that, given everything going on this week in terms of news flow, implied volatility is going to stay down. The term structure of the S&P 500 shows implied volatility is elevated for the rest of this week, and I would say it probably goes higher as we move into Wednesday and then again on Friday.
Today’s rally in stocks did help to move the S&P 500 out of an oversold condition from the standpoint of the Bollinger band and the RSI. Meanwhile, 4,200 is now resistance, which may become challenging for the index to advance beyond. But that will largely be dictated by the data to come this week.
It is possible to count the rally as a retracement and a completed retracement, as it would mark a 50% retracement of the decline from October 24 through October 27; wave C equals 78.6% of wave A. If this is right, then today, the index should drop right from the opening and undercut Friday’s low at some point during the next few days.
If that is the wrong count, the next spot to look for would be 4,200, the 61.8% retracement of the 5-wave impulse down.
Tesla (NASDAQ:TSLA) fell almost 5% today and moved below $200. If the topping pattern was a diamond, then we should return to the pattern’s origin, which is at $165. So, the pain may not be over just yet. The move from the October 2022 lows appears to be a 3-wave retracement pattern—the move down since the July peak appears to be a 5-wave impulse. So, a drop to $165 seems possible in my view.
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