Small Caps Reveal the Truth Behind the Market’s Strength
The Market Isn’t as Strong as it Looks
The last time the market was at an all-time high, the VIX was in the 17s.
The time before that? 15s.
This morning, we’re approaching new highs again. And the VIX is in the 19s.
Why does the VIX continue to climb with the market? Well, because the market isn’t as strong as it looks.
About 30% of the S&P is made up of the same five or six stocks – big names like Apple, Microsoft, Amazon, Facebook, and Google. Names that have been ripping higher while the rest of the market remains weak.
While the SPY is up about 1% over the past five days, the IWM, made up of small-cap stocks, is down about 1.7%.
A small slice of the market is going up and up and up… while the rest of it struggles to stay afloat.
So… what does that mean for the VIX as we head into the end of the year?
Well, expect wild moves.
The VIX is finally back in contango.
That’s good – but the VIX futures curve isn’t the only indicator I look at when determining the color of my VIX light.
I also look at volatility of the VIX. You can determine this by looking at the VVIX Index (INDEXCBOE:VVIX), which is more than 5.5% higher on the day as I type.
The futures curve may be in a contango, but according to the VVIX, my light is still yellow…
Meaning the VIX could rip higher or lower from here…
Especially as we head into the end of the week: Quadruple-Witching Day.
Incoming… Quadruple Witching Day
That means stock index options, stock index futures, stock options, and single stock futures will expire at the same time.
And the market could fly up and down as a result.
See, the December options expiring on Friday were listed more than three years ago. That means we’ve got huge pockets of open interest where traders have hedged their long positions.
Now, they’re going to be forced to roll those hedges further out as the December options expire, which could lead to some major market moves into the end of the week.
And I’m going to be trading those moves ahead of quad-witching day in my Profit Revolution Lifetime Trading Room:
See, my lifetime members have their very own, lifetime-member-exclusive trading room. And that’s where I go live every Thursday at 1PM for an advanced trading session.
This Thursday, those advanced trading recommendations will be all about quad-witching.
And I want you there.
This week only, we’re offering $100 off a Lifetime Profit Revolution membership for Profit Takeover readers only!
If you’re interested in joining Profit Revolution for life, call 877-568-1394. Tell them you’re an e-letter subscriber to lock in your exclusive Profit Takeover deal.
Please do not share this code with ANYONE. This discount is for Profit Takeover readers only.
Trade of the Day: KO
On this morning’s episode of Money Morning LIVE, one of our viewers wanted us to take a look at Coca-Cola Co. (NYSE:KO)…
So that’s exactly what we did.
Our host, Olivia Voz, is a volume profile specialist – and she analyzed KO’s volume profile while I analyzed the implied and historical volatility.
KO Volume & IV/HV Blend, Nov-Dec 2021As you can see, the HV, represented by the red line here, is above the IV, represented by the green line. And if you’re a Profit Revolution member, then you know what that means…
KO is prime for a sub-$1, asymmetric trade. The kind of trade we do in the Profit Revolution live room every day the market’s open.
Voz and I agree – KO could break out above its one-year high of $57.50.
When IV is low like this, that means we want to be a buyer. And we think KO is set to break higher. That means we want to buy a call option.
If we want to give ourselves about a month of time here, then we’d look at the options expiring January 14, 2022.
And the January 14, 2022 $57 calls are only 70 cents…
Which could return up to 185% if KO makes a run at $58.
I’m live at 12:30 PM ET tomorrow for my next Profit Takeover show. Add this event to your calendar here.
See you then,
Mark Sebastian
Founder, Profit Takeover
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December 13 2021
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