Good morning trading world, I was recently asked what it means when /vxk24 goes above the /vxm24. What I am talking about is backwardation. Backwardation is a great sign to let you know when trouble in the market is here and now or later down the line. Lets look at a few ways. This is something i keep up with in my spread sheet. When things are normal volatility is always higher further out in time because things are less predictable the further out in time you go. However, when shit is about to hit the fan now volatility will tell you that by going into backwardation. This happens when the active vol contract (/VXK24) is higher than the contract further out. Whether you look at thru a study set or like I have in a worksheet when short term /VX is higher trouble is now. When short term /VX returns to the lowest trouble is gone.
Today Tesla will have a huge impact on the market. Tesla has been getting killed for pretty much the entire year. I am looking for a brief break in the slaughter of Tesla. Maybe more like a buy the rumor and sell the news. This will help continue the bounce in the entire market briefly thru the day. My target for the /ES is 5086-5093 before we get a possible reversal.
Jack support is 5049, queen support is 5033 and king support area is 5021. Jack resistance is 5093, queen resistance is 5103 and king resistance is 5120 up to 5132. The important battle area or no man’s land to Break is 5060-5093. In this no man’s land the more time we spend below 5076 more it speaks to a bearish continuation. The more time we spend above 5076 the more likely we are to retrace higher into the previous range. On the other hand, if we reverse down the battle ground is between 5021-4989. In this battle ground 5006 is the line of Demarcation. The more time we spend above 5006 the more likely we are to push higher later in the week. Today’s reaction areas are as follows 5048,5043, 4998, 5076, 5095 and 5116.
Remember: Your most important job as a trader is to protect the capital you already have. You do this by knowing and understanding the risk you face in each position and in the current market conditions. We manage that risk in accordance with our account size. I hope this helps, wishing you a positive trading day, let’s make it a great one.