The Margin For Error Is Almost Gone.

Added: 2026-05-30

[00:00:00]The S&P 500 today finished up right at that weekly expected move. These levels are so incredibly important. Right out of the gate, what does this tell me? It tells me nothing crazy happened. The market did what the market expected.

[00:00:12]Actually, it's doing what it's expected for these last three weeks. So, next week's expected move, which we'll get into, is getting rather interesting. As this market continues to perpetuate to the upside, the margin for error in this market, it's it's it's getting very very small. It's like the market is, you know, running out of oxygen as it's hiking up Mount Everest. So, we're going to walk you through why it is that I say that on today's stock market report. If you like this type of content, make sure to subscribe to the channel. We do videos Monday, Wednesday, and Friday.

[00:00:43]Turn on the notifications so you get notified when the video comes out. Now, a quick PSA. Next week, I'm going to be doing some live streams right here on the YouTube, and I'll probably be out there on Twitch as well. If you follow me on X, formerly known as Twitter, I'll be posting when I will be going live. I don't have the exact date set up yet, but I do plan on going live. And then also for my Discord community, if you are in that, I do plan on putting out a video on this week's tight list. I don't typically do that. I give my updated weekly watch list and tight list, but I'm going to go over some of those names that are setting up as well. With all that said, let's go ahead and get into today's show.

[00:01:23]All right, ladies and gentlemen, welcome back to the show. The week just ended.

[00:01:28]Wonderful. We're going into next week, which is a five-day trading week. How did the 11 sectors do in the S&P 500? We had tech lead the way. Materials right behind. And towards the bottom of the list, you saw consumer staples and energy. So, it was a risk on week, right? We had consumer discretionary.

[00:01:45]Think of that as the things that people want. And then we had technology continue to press higher. If we take a look over here on the weekly performance, we had the S&P 500 up about a point just point and a half or so. Q's is up 2.83. So tech is definitely leading the way and you can see a big push there is in semiconductors up almost 4%. Towards the bottom of the list you have oil, right? So oil got clobbered down 8%. Well, that makes sense that energy is down there as well.

[00:02:10]We saw a little bit of a bump up there in TLT which was to be expected after its in pretty significant sell off. IWM finished up about 2% and the NASDAQ composite which is heavily focused there on semiconductors as well 2.39%.

[00:02:25]As this is going on the VIX volatility index has cracked down to 15.32%.

[00:02:32]So it's near really a closing low for the year. Right? I mean we're not the lowest we've been all year but we're at some of the lowest levels that we've seen all year. Now why this is going on?

[00:02:43]It is important to note that the VIX futures curve it is in contango which is a positive sign right we see more volatility out into the future that's to be expected however the steepness is actually quite interesting you can see from June the VIX volatility index to July which is 50 days out is trading in and around 20%. So the VIX volatility is the VIX CBOE index, right, is down at 15.32. The VIX futures are about 17, but we're pricing in roughly about a 20 V into next next month. So volatility is being priced in higher. And while this is actually going on, the volatility of volatility is at its most lowest level from a year-to-ate perspective. So this one got absolutely crushed. Volatility is low. Volatility of volatility is low.

[00:03:32]But there are some interesting things going on that I really want to point out because this is looking at the index level and while this is going on back month first front month volatility has exceeded the 20% level. So this is typically where you want to be significantly more cautious. It's where consolidations and pullbacks take place.

[00:03:51]The more recent one was right here as you can see on this smaller zoomin chart and that happened to be right here before the market pulled in for a few days there ever so softly. If we take a look at the put to call ratio, this is for the equity options. You can see that this is below 0.5. This is the fiveday moving average. And typically when you get below these levels and start to turn back up, it has put pressure into consolidations andor little pullbacks in the market. As you can see, I'm just pointing out multiple times it happened over here. Didn't do much. It pulled a little bit over here. Was uh also in confluence with what we saw right over here. And we saw a little bit of a pullback, but so it's one of those areas where things are very euphoric. Makes sense, right? Right, the market's been straight up, so no surprise there. And then we had the total put to call ratio flip kind of just right around that 08.

[00:04:36]It hasn't fully updated tonight, but the 10day moving average is the one that I'm showing. So it's roughly right about 08.

[00:04:42]And those are also key areas to watch for as things get overly euphoric in these markets. Now, I mentioned volatility of volatility. I mentioned volatility of the S&P 500, but what I haven't pointed out yet is it's it's it's individual equities within the S&P 500. So, more of like an equal weight volatility. This is VIXQ, and you can see that this is roughly actually at year-to- date highs. So, the spread between the two is telling us what it means. The index vault is low.

[00:05:12]individual equity uh options implied volatility is rather high which is causing the higher dispersion that we've been seeing in the market. So you look over here at DSPX which is the dispersion index by CBOE. I think this came out in like 2023. This one cracked up higher today and it's this highest year-to- date close at 42.01.

[00:05:34]And really the only other time in its history of this index that we've been here was over here before the market reverted to the upside. Okay, so there is a differential that we've seen take place between right here and right here.

[00:05:47]Not just that, hey, it was low and then we ripped up higher and then this is high. What are we going to do? Right?

[00:05:52]Maybe perhaps it marks turning points in the market, but there was a significant difference between these two points in time. The main difference has to deal with the core 3M. So this is the implied correlation index. And when I'm looking at this, we just got a crack down to 8.49, which is its lowest level over here since July. Now, we were talking about how the difference between here and here. This was in April of 2024. What was core 3M doing then? Core 3M was over here. So what we saw was actually a correlation spike, meaning more of a capitulatory type event take place.

[00:06:30]while we also saw the dispersion index rise which marked a bottom. Okay, but now we're seeing actually the correlation index at very suppressed levels pretty much like basically the floor here and this is where you want to be a little bit more cautious. The last time we were over at these levels, right, was here where we kind of went sideways for a little bit, but July 12th of 2024 was this day. That's where we closed and then it went up for a couple of days higher and then we saw all of a sudden the markets move back into a more correlated state as volatility increased. And this is the chart that I've been sharing with with you guys for these last couple of days. And you can see that we just saw a massive move in the ratio between dispersion and core 3M. This is the highest level right that I have that I can date back on because well we can only go back to two 2023 for the dispersion index. So this is the highest reading and when you get these extremes things are stretched and they typically mean revert. Now you can see over here where we are now how we see a big spread between the two. The the pink line is the core 3M right at 8.6. The the DSPX which is dispersion is at 4201.

[00:07:41]And if we go back over here to April, right, what was this? What was going on here when we had this high dispersion reading? Well, core 3M was also up there, too. In fact, that's marked some pretty significant bottoms when you start to see spikes in core 3M and it get into and around the same level there as the dispersion index. It's actually marked this bottom over here for the Iran war and then also the tariff deb debacle right over here. And if we were to actually kind of go straight up here, that spike as well marked up uh a little bit of a bottom there. So, this could be one to watch for when correlation increases significantly and catches up there with the dispersion. Could mark potential bottoms, but right now it's just telling us that this market, right, there's that thin line for a margin of error to take really to take place. Now, going into next week, this is also interesting. We're going into a five-day trading week. This today, this week was only a 4-day trading week and we were pricing an $1.31 expected move. This next week, we're only pricing in a $10.13 expected move for SPY and we're having a 5 days of trading. So, in my opinion, I'd be I'd be geared up for this to definitely definitely go for either the lower and or the higher to continue and maybe even exceed some of it. I think that volatility is right now at a floor and we're probably going to start to see some bigger price moves which which create great opportunities for the intraday trader. So I'd be just on on watch out for that. If we continue on and look at the monthly implied move, we have the month of June coming 7834 is what it's priced to the upside. 7325 to the downside. Remember this last month we exceeded it, right? We closed outside of the monthly expected move by a little bit. We came outside here, right? 745 was the upper bounds and we closed here roughly about 756. And now that volatility can potentially increase, I'd be looking at I'd be paying very close attention to these what the market's pricing going into this month. Now, if we start to see more of a crack down, remember the quarter to date expected move is here at 71286 and we're currently outside of it. We have one more trading month left for this quarter. So, that'll be interesting to see where we potentially finish this off at. I thought was that we can potentially come back into this area whether that's through this month of June or potentially we'll re reook at this when we get new quarter date expected moves but I'd be looking in and around this level here if we are going to see volatility pick up uh this next month here in June. Now once again I want to be very clear here. I'm still only longside trading. I'm not going to go in here and short the S&P 500 by any means. It's not what I'm interested in doing. I'd rather just wait for a buy the dip opportunity and then go from there. If we look at the gamma flip line, this is where we're currently at.

[00:10:18]We're roughly at about 7,400. And that is below next week's weekly expected move. This is going is just getting increasingly more and more important to make sure that you're paying attention to that gamma flip line because all these conditions that are lining up when we cross under the gamma flip line, right? Not all crosses are the same, but when you have the market context going as it is, as I've been pointing out, it just gets that increasingly more important. So, we're watch to see where this goes. But right now, as it stands, we're above it, right? So, that means what? Volatility typically comes in.

[00:10:51]Well, it is been coming in since we've been above it. And we've been above the gamma flip line since this day, the beginning of basically the beginning of April. And what's volatility been doing?

[00:11:00]Going down. When were we ab above the gamma or below the gamma flip line? We started crossing over here in February and that gave us a warning shot. Boom.

[00:11:08]Right. And we saw the spike in volatility. So, it's going to be very very very important to continue to monitor and watch if and when price gets to and around this gamma flip line. And by any means it could potentially go up higher. We'll continue to monitor that.

[00:11:21]Another element of all of this is when you go into the gamma flip line, you can have things like CTAs start to sell off.

[00:11:27]Right? We're at exhaustive levels here.

[00:11:29]They're not really adding much to this buying momentum. So, it's still all these factors are kind of just piling on each other, which is kind of why I'm talking about how the market's walking like a tight rope or it's kind of gasping for air and for oxygen up at these levels because there's a few names that are really driving it. Another element that I want to touch on here on the S&P, sorry, not the S&P 500 is on Bitcoin and we did cross under that zero line. It looks like we're going to get our official sell signal. The trigger is when this weekly candle when it's fully closed out when price and if price crosses below it. Right? If price does not cross below it when this week is closed then it's just a sell signal.

[00:12:08]It's more of a warning sign. It's the cross under which is the trigger. That's based off of a strategy that I put together and and tested. Uh that doesn't necessarily mean you go and sell it or you short it or anything like that. You can get a little bit more intricate with it. And then other people like to use different time frames and and you know their own strategies. But that's how I monitor and how I track it. So we'll wait for that to finish. The sell signal looks to be active and then if price, you know, goes up higher and then we get back on a buy signal. If we go back to a buy signal and this low is not taken out, then basically it was just the signal. There was no official trigger in the selling. But we'll continue to monitor and watch. That's all I got for you on today's episode everybody. Hope it helps out. Gives you some insight going into this next week. Like I said, I'm going to be doing some live streams.

[00:12:47]I do expect volatility to be picking up here in the very near future. So, it's going to get quite interesting to watch.

[00:12:53]I'd like to do that live. That's all I got.