Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the Post-Rally Calm Signal
Transcript
- Lucas: So the S&P is sitting at 7,724, up nearly four percent in five sessions. The VIX has collapsed to 15.81. And the VVIX — the volatility of the VIX — is at 90.43. That's a market that just went from 'panic mode' to 'everything's fine' in under a week. Luna: It's like the market took a deep breath. But for a day trader, that kind of calm can be its own signal. You're not watching the tape for a breakout yet — you're watching for the thing that breaks the calm. Lucas: Before we dig into the mechanics of trading the post-rally calm — and I promise we'll get there — if this podcast has paid for itself in a trade idea or two, you can keep it ad-free at buy me a coffee dot com slash fexingo. It's a small gesture, but it genuinely matters to us. Luna: Yeah, and it's how we keep the show independent. No sponsors dictating what we cover. Lucas: Right. And speaking of signals — the VIX at 15.81 is below its long-term average of around 20, but it's not extreme. The real red flag is the vvix to vix ratio. Right now it's about 5.7. Historically, when that ratio gets above 6, it's telling you that options traders are bracing for a volatility spike — even as the spot VIX is quiet. Luna: So the calm might be a false sense of security. Especially with Fed Governor Cook saying she's prepared to act on a rate hike to address inflation. That's not a dovish backdrop. Lucas: Exactly. And there's also chatter about fewer Fed meetings going forward — which would be a structural change that markets haven't fully priced. So you've got a potential catalyst on the horizon, and the VVIX is hinting that traders are nervous even though the VIX is low. Luna: How do you trade that? Do you just sit on your hands until something happens? Lucas: Not necessarily. The key is to treat the calm as a range-bound environment. When the VIX is below 16 and the market is up four percent in five days, you often get a consolidation phase. That means you can trade the range — buy support, sell resistance — but with tighter position sizes and wider stops, because the range isn't guaranteed to hold. Luna: And what about the VVIX at 90? Is that a level you'd act on? Lucas: The VVIX itself is a measure of fear about fear. When it's falling, like it has been — down four and a half percent over five days — it suggests that options dealers aren't worried about a near-term vol spike. But the ratio is what matters more. I like to watch for a divergence: VIX falling while VVIX holds steady or rises. That's the early warning sign. Luna: So if VVIX starts ticking up while VIX stays low, you'd start buying protection or reducing exposure? Lucas: Something like that. Or at least you'd avoid adding new long positions into strength. And you'd be ready to flip to short if the market breaks below the range. The Situational Awareness hedge fund meltdown is a perfect cautionary tale — that fund was leveraged to the hilt in a quiet market, and when volatility spiked, it got wiped out. The BofA CEO called it a warning shot for leveraged markets. Luna: It's a reminder that leverage cuts both ways. In a calm market, you forget that the VIX can double in a day. Lucas: Right. So the practical playbook for today: first, identify the range. Look at the S&P 500's high and low over the last three days. Right now, that's roughly 7,650 to 7,750. Second, set alerts at the boundaries. Third, if you're a momentum trader, don't force it — wait for a break with volume. If you're a mean-reversion trader, you can fade the edges with small size. Luna: And what about the Fed headline? Does that change the range? Lucas: It adds uncertainty, which usually compresses ranges. But the market has a way of ignoring headlines until it doesn't. The bigger risk is that the Fed moves to fewer meetings — that would change the calendar of catalysts, and options traders would have to reprice everything. That could be the trigger for a vol spike. Luna: So you're saying the calm is real, but it's a fragile calm. Lucas: Exactly. And that's why the VVIX ratio is your friend. It tells you when the market is paying for protection. When it's cheap, you can buy it without much cost. When it's expensive, you might want to sell it. Right now, it's in the middle — not screaming bargain, not screaming overpriced. Luna: What about the small caps? The Russell is up two and a half percent over five days, but it's lagging the S&P. That's another divergence. Lucas: Good point. Small caps are more sensitive to rate expectations. If the Fed is hawkish, they get hit harder. So the Russell underperforming is a subtle clue that the market doesn't fully believe the rally is sustainable. It's another reason to keep position sizes modest. Luna: And the headlines about SpaceX, AMD, Eli Lilly, Disney — those are individual movers, but they don't change the macro picture. Lucas: No, they're noise. But they can give you intraday trades if you're quick. The point is, when the VIX is this low, you want to be selective. Don't overtrade the noise. Trade the edges of the range, and keep your risk per trade to half a percent or less. Luna: So the takeaway: the calm is a feature, not a bug, but it's a fragile one. Watch the VVIX ratio, respect the range, and don't get complacent. Lucas: That's the whole game. And if you want to see how we set up alerts on these levels, we'll put a little more detail in the show notes. But for now, the key is to be prepared for the day the calm breaks — because it will. Luna: You almost hope it doesn't break tomorrow, though. A quiet day can be a good day to bank some profits and reset. Lucas: True. And that's a discipline in itself. Knowing when not to trade is just as important as knowing when to trade. So if the range holds, you can take a few small wins and sit back. If it breaks, you're ready. Either way, you're not caught off guard.