EB Special Report - Friday, August 12, 2022

This will be a very abbreviated report. I was holding off to see if we might see a reversal this afternoon. If we're going to, there are no signs of it with 45 minutes left in the trading day.

There are two things I want to bring to your attention.

Volatility Index ($VIX) Below 20

The VIX closed at 19.74 on Wednesday, which was the first time we've seen the VIX below 20 on a close since April 4th, and only the 7th time since the initial selling episode in the first half of January. Yesterday, the VIX jumped right back up above 20, but today we're looking to close even lower than we did on Wednesday. In a nutshell, fear continues to evaporate and that is really bad news for the bears.

In all of my research, I've found that the truly important VIX level is 16-17. Once the VIX hit this level - even in the worst secular bear markets - we never ventured back to new lows. In other words, if the VIX moves down to 16 and we subsequently see the S&P 500 move to a low beneath the June low, it would mark the very first time in history (at least since 1950) that the VIX had dropped to 16, and then a bear market continued.

Keep that number in mind.

August Max Pain

We'll be doing a lot of calculations this weekend and trust me - you are going to want to see them. There will be an inordinate amount of net in-the-money call premium at today's close.....and with just one week to go before August monthly options expiration. I did a calculation on the SPY (ETF that tracks the S&P 500). Here's a chart of the SPY with the max pain level featured with a horizontal line just below 400:

Currently, there is $1.9 BILLION in net in-the-money call premium and this is JUST ON THE SPY. Imagine the QQQ and all the growth-oriented NASDAQ stocks. Any bad news at all and we could see a significant selloff next week. I'm not banking on it, but we MUST be aware of it. This is no time to be a hero and be all in with something like the QLD.

We'll have LOTS of max pain work done over the weekend and we'll share our work with you.

Be very careful into next week.

Have a great weekend, we'll be back on Monday for more action.

Happy trading!

Tom