Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / Reading the Post-Rally Tape When the VIX Sits at 14.43
Transcript
- Lucas: So the S&P closes near seventy-seven twelve today, up roughly eight tenths of a percent on the week. And the VIX has dropped to fourteen forty-three — that's a nine percent weekly slide. For a day trader, that's the kind of tape that lulls you into thinking everything's fine. Luna: But everything's not fine, right? I mean, the Nasdaq's up one point six percent for the week, but the Russell's down nearly a percent. That's a split tape. Lucas: Exactly. And that divergence is the story. The VIX is low because the big-cap indices are holding up, but underneath, small caps are bleeding. When you see that, the complacency in the VIX can be misleading. Luna: So how do you actually read that as a day trader? I mean, the VIX is your fear gauge, but if it's not reflecting the weakness in small caps, what do you use? Lucas: That's where the VVIX comes in. The VVIX — the volatility of the VIX — is still sitting at eighty-six point six three. It's down two and a half percent on the week, but that's still elevated relative to the VIX level. When the VVIX stays high while the VIX drops, it tells you that traders are still nervous about how the VIX itself might spike. It's like a coiled spring. Luna: So the VIX is complacent, but the VVIX is saying 'not so fast.' That's a useful divergence. Lucas: Right. And for a day trader, that means you should be ready for a sudden volatility expansion, even on a day that opens quietly. The other thing I'm watching is the Fed. The September decision is now a coin flip — rate hike odds have gone up since Warsh's comments. That kind of macro uncertainty tends to keep intraday ranges tighter until you get a catalyst. Luna: But the market is pricing that in, right? I mean, the S&P is near all-time highs, so it's not like the market is terrified of a hike. Lucas: Yeah, but that's the thing — the market has absorbed the rhetoric. The real risk is the surprise. If the Fed actually hikes, that's a shock to a system that's been pricing in a pause. So as a day trader, you want to position for a volatility pop, not necessarily a directional move. Luna: So what does that look like in practice? How do you play the open tomorrow if you're seeing this vix vvix divergence and a coin-flip Fed? Lucas: I'd start with the pre-market tape. Look at the futures, look at the sectors that are leading and lagging. If small caps are weak again, that's a sign that risk appetite is fragile. Then you watch the VIX early in the session — if it starts to tick up while the S&P is flat, that's a warning. Luna: And what about the VVIX? Do you watch that intraday as well? Lucas: Absolutely. If the VVIX starts to climb even as the VIX is flat, that's a tell that options traders are bracing for a move. That's often a leading indicator for a breakout — or a breakdown — later in the day. Luna: So before we go deeper into the setups, I want to say something. We keep this show free and ad-free — that's a deliberate choice. If you've gotten value from these episodes and want to support that, the link is buy me a coffee dot com slash fexingo. No perks, no pressure, just helping keep the lights on. Lucas: Yeah, it's a nice way to keep this a clean, distraction-free space for trading ideas. Appreciate anyone who feels like chipping in. But back to the tape — let's talk about the breadth signal. The Russell's down, the NYSE composite is down, but the Nasdaq is up. That's a classic momentum-led market, but it's not healthy breadth. Luna: So what does a day trader do with that? I mean, if the indices are diverging like that, how do you pick your plays? Lucas: You focus on the strongest names in the strongest sectors. If the Nasdaq is leading, you look at tech and maybe some of the AI names that have been driving it. You don't try to catch falling knives in small caps just because they might be oversold. The trend is your friend until the tape tells you otherwise. Luna: And what about the volatility smile? I know we've touched on that before, but does the current shape tell you anything about where the risks are skewed? Lucas: It does. With the VIX low but the VVIX elevated, the smile is probably more skewed to out-of-the-money puts, which means traders are paying up for downside protection. That's a sign that the market is complacent on the surface but hedging for a tail risk. As a day trader, you can use that — if you're playing for a quick move, you might look at options on the VIX or the indices rather than just straight stock. Luna: So what's your takeaway for someone who's going to trade the open tomorrow morning? Lucas: Keep your size small until you see how the tape reacts to the first half hour. The VIX is low, but the VVIX is telling you that a volatility spike is possible. So don't get complacent. Watch the futures, watch the breadth, and be ready to flip if the momo shifts. Luna: That makes sense. And also keep in mind that September Fed decision — it's a real coin flip, so any headlines could suddenly change the game. Lucas: Exactly. So the playbook is: expect a quiet open, but have your triggers set. If the VIX starts to rise above fourteen fifty or so, that's your cue to tighten up. If the VVIX breaks above ninety, that's even more of a warning. Luna: And what about the commodity space? I saw corn and wheat hit three-year highs today. Does that spill over into anything you'd trade? Lucas: That's a good point. Agricultural commodities ripping like that can feed into inflation expectations, which feeds into the Fed's decision. It's not a direct day-trading signal, but it's part of the macro backdrop. If you see ag stocks or fertilizer names moving, that's a sector rotation you could ride. Luna: So how do you weigh that against the tech momentum? Lucas: You don't necessarily have to choose. The day trader's job is to find the best relative strength, whether that's in tech or ag. But on a day like today, where the Nasdaq is up and small caps are down, I'd lean toward the liquid large caps. They're easier to get in and out of, and they tend to follow the index direction more cleanly. Luna: Right. And I always think about the post-earnings drift — companies that just reported and have momentum. Any names you're watching there? Lucas: PayPal and Affirm were both making big premarket moves today. Those are names that have been volatile after earnings. If you see a gap and hold, that can be a nice intraday trend. But you have to be careful — gaps can also be fade-city if the market turns. Luna: So do you have a rule for when to trust a gap versus fade it? Lucas: I look at the open — if the gap holds in the first five minutes and the stock starts to build a base above the premarket levels, I'll lean with it. If it immediately reverses and breaks below the open, I'm out. Always have a stop. Luna: That's a good discipline. And with the VIX where it is, do you think the volatility will stay low for the rest of the week, or is a spike likely? Lucas: Hard to say, but the VVIX suggests the market is expecting something. My gut says we're due for a volatility expansion — maybe not tomorrow, but within the next couple of weeks. With the Fed decision in September and the geopolitical noise, there are plenty of potential triggers. Luna: So what's your final word for traders listening tonight? Lucas: Stay nimble. The quiet tape is a gift if you use it to plan your setups, but it's a trap if you let your guard down. Keep your stops tight, watch the VIX and VVIX, and don't let a low volatility number lull you into a false sense of security. Luna: And if you're looking for more of these conversations, you know where to find us. We'll be back tomorrow with the pre-market rundown.