Yesterday unfolded as rather uneventful, with the stock market finishing neutral, interest rates climbing, the equity market advancing, and implied volatility marginally higher. This earnings season has proven to be quite unusual in several aspects.
In the previous session, I highlighted the emergence of a rising wedge in the S&P 500, and as of the latest market close, the index has nearly exhausted its space within this pattern.
There may be marginal leeway available, but it is limited. As mentioned yesterday, such formations inherently bear a negative connotation.
Nevertheless, a bearish inclination does not automatically translate to an inevitable downside resolution.
In normal circumstances, I would hold a significantly higher level of conviction regarding this pattern; however, given the challenging nature of the past four months in relation to my S&P 500 outlook, my confidence is markedly restrained.
If the pattern undergoes a downside breach, a potential retracement back to its origin at 4850 could materialize. Subsequent directional movement would require further observation.
Upon reaching the level of 4,850, a plethora of intersecting trend lines might trigger consequential developments. Subsequent shifts could potentially unfold if these trend lines begin to falter.
As noted earlier, implied volatility recorded a marginal uptick yesterday, signifying a consecutive two-day ascent in the VVIX, which advanced by 3% to 83.
Historically, when the VVIX exhibits upward momentum, the VIX tends to closely follow suit.
The VVIX serves as an indicator of the implied volatility within the VIX, and an increase in the implied volatility of the VIX suggests an underlying catalyst for this behavior.

The persistent containment of the VIX below the 13 to 14 range is partially attributable to the substantial gamma buildup encompassing the options expiration scheduled for next Wednesday, i.e., February 14th.
The occurrence of the VIX options expiration (OPEX) on the second Wednesday of the month is atypical but aligns with the current calendar schedule.
This context is pertinent, as it is intriguing to witness an elevation in implied volatility levels alongside an ongoing influence of options flows in maintaining the VIX within prescribed limits.

Meanwhile, despite a seemingly successful Treasury auction on the preceding day, upward shifts were observed in the 30-year and rates.
The 10-year instrument is on the brink of a breakthrough, poised to ascend beyond the 4.20% juncture. Should this materialize, an initial ascent to approximately 4.35% could ensue.
Unexpectedly, the is presenting intriguing developments, as it seems to be in the process of establishing a double bottom pattern, interspersed with indications of a diamond reversal formation.
Observable strength is evident in the RSI, which has exhibited a progressive ascent since June.

When viewed from the inverted perspective, the peso’s relationship with the S&P 500’s dynamics becomes more apparent.
The interconnections between the S&P 500 and various currencies appear to be pervasive, correlating with the fluctuating strength of the dollar.
This emphasizes the substantial impact of fluctuating financial conditions on market dynamics. Moreover, the observable divergence between the S&P 500 and the peso underscores this phenomenon.

Apple (NASDAQ:) is also veering away from the S&P 500’s trajectory and appears to be following a more bearish trajectory. A breach below the $186 level is likely to prompt a retracement towards the $167 level.

There are apparent indications that Tesla (NASDAQ:) could have breached the neckline of a head and shoulders pattern.
While the situation remains ambiguous at present, there is a discernible possibility that this confirmation of the pattern signals that the stock’s tribulations are yet to be fully played out.

Nvidia (NASDAQ:) displayed a notable reversal candle in the previous session, breaching above the prior day’s high before concluding beneath the preceding day’s closure.
Considering its markedly overbought condition and the presence of a call wall for the stock in the current and upcoming weeks at the $700 level, the stock’s arduous journey in this range over the past four days can be attributed to these factors.

Concluding thoughts…
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