Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the Post-Jackson Hole Hangover
Transcript
- Lucas: So the VIX is sitting at fourteen point five one, down four percent on the week, and the VVIX is at eighty-two point nine. That's a pretty specific setup we haven't talked about much. We've done quiet tape episodes before, but this one has a real event dangling over it: Jackson Hole tomorrow. Luna: Right, and today's headlines are all about the Fed chairman's speech. Kevin Warsh is delivering the key address Friday. But the tape already seems to be pricing in something. What are you seeing? Lucas: Yeah, the S&P is up zero point seven percent over five days at seventy-seven thirty-one, but the Russell is basically flat at three thousand and fourteen, down zero point one. That divergence is the real story for day traders. Big caps are grinding higher while small caps are just not participating. Luna: So what does that divergence tell you? Is it risk-off hiding in plain sight, or just a lack of conviction? Lucas: I think it's a lack of conviction, honestly. The VIX is low, so there's no panic. But the Russell's flat action suggests traders are waiting for a catalyst before committing to anything cyclical or rate-sensitive. And with Schmid saying inflation is stubborn and sticky, the rate path is still uncertain. That makes the small-cap bid hard to sustain. Luna: That's a good point. So how do you actually trade a tape like this? You can't just buy the dip because there's no dip. You have to be more surgical. Lucas: Exactly. And that's where the post-earnings drift pattern comes in. We saw Gap, Workday, and Autodesk making big moves after hours. For day traders, the drift after an earnings reaction can be a reliable intraday signal, especially when the broader tape is quiet. Luna: So you'd look at the initial jump or drop and then play the continuation? Or do you fade it? Lucas: It depends on the name and the volume. If a stock gaps up on strong earnings and the volume is above average, the drift tends to continue into the first hour. But if the gap is huge and the VIX is low, you sometimes see a fade as profit-takers step in. You have to look at the bid-ask spread and the relative volume. Luna: That makes sense. And with the VIX down to fourteen, options are cheap, so you can actually use them to express a view without risking too much capital. Lucas: Right. And that's a kind of underappreciated part of a quiet tape. The VVIX is also down, at eighty-two point nine, which means volatility of volatility is low. That tells me the market isn't expecting a big move, even with Jackson Hole tomorrow. But that can be a trap. Luna: A trap how? I mean, if everyone's complacent, that's when the surprise hits hardest, right? Lucas: Exactly. And the Fed minutes earlier this week were already a hawkish surprise. The market took them in stride, but if Warsh comes out more hawkish than expected, you could see a spike in the VIX that nobody's positioned for. So the smart day trader isn't just playing the drift; they're also watching the VIX futures for signs of positioning. Luna: So you're saying the low VIX is a double-edged sword. It makes options cheap, but it also means the market's underpricing tail risk. Lucas: Exactly. And that's why I like to look at the VIX smile curve, but we've covered that before. Today I want to focus on how you actually trade the pre-speech chop. The key is to keep your positions small and your stops tight, because the market can go either way on a single headline. Luna: Yeah, and I think it's worth mentioning that the S&P is near all-time highs. That's a different kind of complacency. But you're right, the tape is quiet. Lucas: And that's exactly the kind of environment where a listener-supported show like ours can thrive. Look, we don't run ads, and that's intentional. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's what funds making this many of these episodes. It keeps us independent and lets us talk about things like the VIX smile curve without worrying about sponsor conflicts. Luna: That's true. And we really do appreciate it, because it lets us go deep on these niche day trading topics that a lot of mainstream shows skip. Lucas: So if you get value out of this, you know where to find us. Now, back to the tape. We were talking about post-earnings drift. Let's look at Gap specifically. They had a big after-hours move. What should a day trader look for tomorrow morning? Luna: Well, Gap has been a volatile name. I'd look at the pre-market volume and the gap size. If it's up more than five percent and the volume is heavy, you might see a gap and go. But if it's up less than three percent, you might get a fade. Lucas: Right, and the same logic applies to Workday and Autodesk, though those are bigger caps. Workday is a software name, so its drift might be more muted. But Autodesk, that's a different animal. It can have a real momentum day. Luna: So you'd tailor your approach based on the sector and the typical volatility of the stock. Makes sense. Lucas: And you also need to watch the broader tape. If the S&P is trading flat or slightly up, that's a green light for momentum. But if the index starts to roll over, even a good earnings name will struggle. Luna: And with the Russell flat, that's a warning sign for small-cap names, but these are all mid to large caps, so they might be okay. Lucas: Exactly. So my framework for tomorrow is: first, check the pre-market on Gap, Workday, and Autodesk. Look at volume and gap size. Second, check the S&P futures. If they're holding up, you can play the drift. Third, keep an eye on the VIX. If it starts to creep up, tighten your stops. Luna: That's a solid plan. And what about the Jackson Hole speech itself? You said if Warsh is more hawkish, we could see a spike. How would you play that? Lucas: I would not try to trade the speech itself. It's a binary event, and the move can be violent. Instead, I'd wait for the first ten or fifteen minutes after the speech, let the market find its level, and then look for a range to trade. That's a much higher-probability setup than trying to guess the headline. Luna: So you're saying the best day traders don't trade the event, they trade the reaction to the event. That's a good distinction. Lucas: Right. And that applies to any big macro event. The Fed minutes were a good example. The initial reaction was hawkish, but by the close, the market had digested it. If you'd traded the open, you might have gotten stopped out. If you'd waited for the dust to settle, you could have caught a nice reversal. Luna: That's a good lesson. And I think it's worth mentioning that the VIX is already down four percent on the week, so the market's not showing any fear going into the speech. That might be the real tell. Lucas: Yeah, and that's why I'm a bit cautious. When everyone's complacent, the risk of a surprise is higher. But you can't just sit on the sidelines all day. So you manage your size, you manage your risk, and you look for the setups that align with the tape. Luna: So let's talk about a specific trade. Suppose Gap gaps up five percent tomorrow. What's your entry and stop? Lucas: I'd look at the first five-minute candle. If it holds the gap and makes a higher high, I might enter on a pullback to the VWAP. My stop would be below the low of that first candle, maybe a couple of cents. My target would be the high of the pre-market range. That's a classic gap and go setup. Luna: And if it gaps up but then starts to fade immediately, you'd fade it instead? Lucas: Yeah, but fading is riskier. I'd only do that if the volume is light and the broader tape is weak. Otherwise, I'd just pass and wait for a better setup. Luna: That makes sense. And what about the small-cap divergence? Any trades there? Lucas: With the Russell flat, I'd avoid small caps for now. If the S&P continues to grind higher and the Russell starts to catch up, then you might see a rotation. But until that happens, it's a one-sided tape, and you're better off sticking with the leaders. Luna: So focus on the big caps, the momentum names, and the post-earnings drift. That's a clear playbook. Lucas: Exactly. And remember, the goal isn't to catch every move. It's to be selective and protect your capital. On a day like tomorrow, with a major speech in the afternoon, the morning might be the best window for trades. After the speech, it could get choppy. Luna: Yeah, that's a good point. And I think the takeaway here is that even when the tape is quiet, there are still opportunities if you know where to look. Lucas: Absolutely. The post-earnings drift is one of those under-the-radar patterns that works especially well when the broader market isn't providing direction. So keep that on your radar, not just this week, but every week.