Less than one full trading day from an all-time high in the tech sector (XLK) and Nasdaq, volatility expectations have completely blown-out. We rarely see this kind of divergence in expectations between sectors. The XLK and Nasdaq are going through one of many manic counter-TREND moves in macro today, and we haven’t changed our focus on hunting for real-growth exposure at the right time and price. The one-day capitulation changes the price we might get to buy and nothing else. Our key TREND duration support lines for XLK and QQQs are as follows:
- XLK TREND Support: $54.11
- QQQ TREND Support: $133.43
Below we contextualize the size of the move in tech and Nasdaq volatility expectations with just a few bullets and charts:
- The VXN has popped +60% w/w vs. +24% for the VIX. For context the Nasdaq volatility index is now in the 90th percentile of the last five years compared to just the 14th percentile for the VIX.
- Looking at the spread in active front month implied volatility between XLK and SPY, the spread which is 7 points of volatility wide, is +~5x extended on a 3yr z-score basis. The XLK/SPY implied volatility spread is widest since August of 2015 (It was 8 points wide for just one day in the draw-down of August 2015).
- Looking across contract expiries, implied volatility is up ~40-50% from Thursday’s close. Front-month, 30D, and 60D implied volatility moved from 12% to 18% in less than 1 trading day. We would look for the opportunity to sell vol and take a long underlying position at the right time and price.
