This is exactly the dip in SPX and mini-spike in the VIX I was looking for this week. It took a while to come but it is finally here and it may not last a long time. The reason for the VIX spikey is that the only volatility event this week is JP Morgan’s earnings which kick off the earnings season. JPM will report before the market opens tomorrow. As is customary before volatility events, the VIX tends to rise for a couple of days along with the VVIX as traders hedge for the unforeseen and then as soon as uncertainty is removed from the market (we know what JPM’s earnings are and the market reacts rationally) then the VIX drops as traders remove the hedges once the unforeseen does not happen.
For the SPX, after we get the JPM earnings tomorrow, that event is finally going to give Financials a green light to go higher and that is going to carry the market over 2280 and the DOW to over 20,000 finally. Obviously, I don’t know what JPM earnings are going to be, but all I know it is a solid company, they are the best in class enterprise these days, so it is going to show a solid beat, a rising net interest margin and the CEO Jamie Dimon who has been very upbeat on the economy, will again be upbeat on the economy. He may even say nice things about the Trump administration. This has been the script over the past few quarters, so I don’t foresee anything deviating from that script tomorrow. Once all of this information comes in, Financials are going to start another leg higher as they have been grinding in place for over a month now. Obviously, upgraded earnings prospects for 2018 at JPM, BOFA, WF will have a lot to do with the upward repricing of the financial stocks. Just the availability of earnings information for 2018 will propel prices higher as the forward estimates are likely to be higher. And then the market will follow. We could even have a bounce in the 10-Year yield higher as the market discovers a healthy economy and a higher demand for loans at higher interest rates from the financial statements of the banks. The 10-Year yield is testing the 50MA so this is a natural place and time for a bounce higher. And a bounce higher in the 10-Year yield will trigger some of the correlation algos to buy the financials and propel them higher as well. With about 15-20% of the earnings reported after this week, there is going to be more certainty about the SPX earnings estimates and if they come in as good as I think they will, the market has only one place to go: bounce off that trend line it is sitting on now and then head higher.
On the upside resistance is at 2280 for the SPX and on the downside the 30MA at 2250 is the next support level today.
