Option Analysis Setups: $SPY Likely to Consolidate this Week while Energy Should Remain Strong...
...At least through the summer
Weekly Recap:
● After consolidating to start the week, the rip on Thurs never lasted
● Friday showed traders what the market is really about
● Traders simply don’t want to be long into FOMC
● We think the range is in play till the Fed meeting
Market Abstract:
The first weekly bullish close was followed by a weekly bearish close, albeit during a shortened trading week. Share volume declined all week, which is not a sign we see when a bear market is ending. This only adds to the weakened liquidity. While there were some mixed flows on Friday (call buying on dips, call selling on rips), some single tickers like Tesla were posting heavy negative delta trades to close the week, some of the worst/most bearish flows I’ve seen in weeks there.
I think smart traders don’t want to be long calls/shares going into FOMC, so this should lead to a contraction in price action and volatility to start the week, and then a pick up in vol later in the week as we get closer to the FOMC when traders will want to be long VIX calls and long SPY puts.
The fact the price action in SPY’s also consolidated all week between 418 and 408 will pull in option strikes near those levels, thus further suppressing vol to start the week.
We think VIX has found its ‘relative’ bottom around 24/25. It’s weird how vol has been suppressed via VIX and VVIX with the latter being where it was on Feb 3rd pre-covid crash (chart below).