The Blue-Chip Index Coming Under Pressure
Contributed Opinion

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There is a massive divergence happening between the Dow Jones Industrial Average, the Dow Jones Transportation Average and the S&P, the NASDAQ, and the Russell 2000 and while it might be shrugged off to year-end rebalancing, I find it odd to see the blue-chip index coming under such pressure.

Last year, the DJIA rose eight of the first eleven sessions in the month of December, while 2022 had six sessions up and five down in the same stretch. In both 2021 and 2020, there were seven wins and four losses in the same time period in both years. Weakness in the Dow averages cannot be seen as positive.

Note the strength all day today in the NASDAQ, the S&P 500, and the Russell 2000, and yet the VIX closed on the high for the day, moving from a low under 14.00 going out at the high for the day at 14.69. If we get the same type of move tomorrow, the VIX December $10 calls could get skated quickly onside, which would signal that someone is scrambling to get hedged while moving into the FOMC meetings.

If that is the case, then tomorrow and again Wednesday morning, those portfolio managers looking to lock in the spectacular 2024 returns are either sellers of stock or they are buyers of protection. If they are sellers, then the VIX has to advance; if they scramble for protection, the VIX also has to advance.

Any way you cut it, the VIX might be the best end-of-year trade in years.

The UVIX:US, to which I added last week at $3.15, closed at $3.275 after a $3.29 print late in the day. If I were not hearing rumors of a possible reverse split (a really ugly habit by the managers of that ETF), I would be going "ALL-IN" on it as my proxy for volatility (portfolio insurance). I have a feeling that calls on the actual VIX index might be a safer avenue to take this time around. If you cannot do options, then the SDS:US or SQQQ:US, both "reverse ETFs" designed to simulate short positions on both the SPY:US and the QQQ:US will suffice.

The VIX December $10 calls went out at $4.90 against my average cost of $6.00. While the VIX January $10 calls are now ahead nicely to $6.65 (I paid $6), I will hold these until the Powell press conference that will arrive Wednesday at 2:30 pm (EST).

If Powell even hints at a "pause" or says anything that will convey restraint in the widely expected 2025 rate cuts, I will wait for the right moment to roll December into January and then await the results of the Santa Claus Rally ("SCR") and the First Five Days ("FFD") in order to either cash the ticket or double down.

It's heating up!