Trillion Dollar Plus Day – Step 3 In Bottoming Not Here Yet

Happy first day of spring as well as my little guy’s 18th birthday! I guess we have no more “kids”, just “adults” although who am I kidding? Most of our friends would not consider me to be an adult.

Today is one of the largest options expirations in history. Trillions of dollars in derivatives are going off the board. While the numbers have become gargantuan, their impact has been mitigated by 0DTE or zero days til expiration options. In other words, new products that expire everyday have surpassed the weekly and monthly expirations. What does that mean to you? Not much really. There are likely hundreds of billions of dollars, if not trillions, in various strategies derived from options and volatility and the like. When trillions roll off the board, new positions will be established next week.

I pointed this out on Twitter last week and it happened again. Yesterday, the S&P 500 was down as you can see below. In the lower chart, the VIX was also down, meaning the implied volatility declined. That’s not normal behavior as we typically see a down market with a rise in the VIX. Of course, today’s expiration could have impacted it, but it also might say that a low is forming.

If you are keeping score at home, the S&P 500 is getting closer and closer to my worst case scenario area around 6500. If that comes to fruition we should see a “whoosh” lower and causes a bang with some panic ,something that has been missing from my bottoming process where steps one and two are in the books. If that happens, we also want to see the VIX spike but no exceed 35.

When I look at my four key sectors, only semiconductors are outperforming and behaving well. The other three look like the S&P 500 or worse.

Next week, we will look at junk bonds and the NYSE A/D Line for other clues.

I was hoping to get up north this weekend, but all three kids will be home so that makes it tough to leave. We also have the UCONN men and women playing tonight and tomorrow and I can really only attend one. And then there’s the rather large tree that fell in the backyard last month that needs to be cut up and removed. I know. I know. Be careful. I think I also want to brush the cobwebs and dust from my golf clubs and hit some balls. Oh yeah, I need a dump run. Looks like a busy weekend.

On Wednesday we  sold IWN, TQQQ, XHB, XLC, LRE, XLV, some QLD and some RMQHX. On Thursday we bought ITB, XRT, more QLD and more MDY.