Stocks managed to rise again yesterday, making things a bit more exciting than Monday, but also somewhat nauseating. Perhaps it’s because my central air conditioning is broken, and I haven’t slept well for a few nights. Or maybe it’s because I received word that the needed replacement part is still 3 to 5 days away. Either way, yesterday felt unusually annoying.
Examining the S&P 500 futures, it is clear that a compression pattern is forming within the rising wedge. I’m not entirely crazy—this compression is confirmed by the Bollinger Band width, now at its lowest level since February. Additionally, volume in futures has been steadily declining, even as the index reaches the upper Bollinger Band.
Meanwhile, 10- and 20-day realized volatility in the S&P 500 futures have now returned to their lower ranges, nearing some of the historically low levels we saw during mid-to-late 2024. With the 10-day realized volatility at just 7%, the S&P 500 futures would need daily moves of less than 44 basis points—either up or down—to continue pushing realized volatility even lower.
With realized volatility becoming increasingly compressed, we’re starting to see the VVIX pick up again—it rose yesterday, climbing to 92.
Even the 1-month implied correlation index is tightening at this stage.
It’s also worth noting that the BTIC S&P 500 Total (EPA:TTEF) Return Futures have drifted back toward their lows, continuing to diverge from the cash market.
Anyway, I’m not sure how many more times they can keep saying “talks are progressing well” or “deals are expected to close soon.” I’m also uncertain how much “vol supply” remains in the market.
Perhaps the 0DTE bros and the recent breadth thrust groupies can push things a bit further, but we’ve reached that familiar point where the market compresses too tightly—and then suddenly pops. It feels like we’re just about there.