The stock market experienced a significant rally on November 24th, with the S&P 500 surging approximately 1.5%. This upward trend was primarily fueled by a sharp decline in implied volatility, particularly following Nvidia's earnings report and the recent jobs data.
VIX Plummets, Equities Soar
The VIX 1-Day index witnessed a dramatic drop, plummeting from 23.5 on Friday to a mere 14.3. This collapse in implied volatility provided a strong boost to equity markets, propelling them to higher levels.
The broader VIX index also decreased, settling around 20.5. With implied volatility essentially reset, the market is poised for potential stabilization on Tuesday, a pattern observed in recent Mondays.
Key Resistance Level at 6,700
The S&P 500 index encountered resistance around the 6,700 level, a significant area for options positioning. This likely contributed to the index's inability to surpass this level significantly on Monday afternoon.
Furthermore, the index approached its 50-day moving average at 6,713, which acted as a resistance point. While this moving average hasn't consistently dictated the index's direction recently, it appeared to play a crucial role on Monday. Whether the index can break through this level or whether it continues to act as resistance remains to be seen as we move into Tuesday.
With the tailwind from the implied volatility crush diminishing, achieving further breakouts in the S&P 500 may prove challenging. This raises the possibility of a retracement of Monday's gains. Technically, the weak closing on Friday, November 21st, coupled with Monday's gap opening, created a gap pattern that typically fills within a few trading days.