Channel Momentum and Tactical Positioning
We are riding a strong uptrend into June, but the cooling momentum suggests we should not get complacent. While the S&P 500 has room to run within its current channel, the RSI failing to make new highs alongside price is a classic signal of exhaustion. This tells us to stay long but to keep our hands near the exit. With the index mid-channel, we see a tactical opportunity for a push towards the upper boundary near 7,700. We can express this view by looking at short-dated call spreads to define our risk ahead of this week’s key data. Recent CBOE data shows the put-to-call ratio has fallen to a yearly low of 0.65, indicating high complacency that could fuel a further squeeze higher if payrolls data comes in soft. However, we must also respect the warning signs and be prepared for a pullback if the data is hot. Buying cheap, out-of-the-money puts for Friday’s expiration could be a prudent hedge against a hawkish surprise from the Nonfarm Payrolls report. The support level at 7,350 is the critical line; a break there would signal the uptrend is in jeopardy.Event-Driven Volatility and Sector Focus
This week’s jobs report is the main event, creating a classic setup for a volatility trade. The VIX is currently trading near 13, which is historically low heading into such a pivotal economic release that could shift Fed policy expectations. We believe a long straddle or strangle is an effective way to position for a larger-than-expected move in either direction post-announcement. We are also paying close attention to the housing sector after the Berkshire Hathaway bid for Taylor Morrison. There has been a notable spike in call option volume on the homebuilders ETF (XHB), with open interest on July contracts jumping over 20% yesterday. This suggests a new, rate-sensitive leadership group could be emerging, and we should consider bullish positions there. The immediate plan is to maintain our core long positions while using options to prepare for this week’s binary event. We will watch the rising anchored VWAP as the first dynamic support on any intraday weakness. Ultimately, Friday’s jobs number will likely determine whether we test the channel’s upper limits or re-evaluate the trend at 7,350.Start trading now — click here to create your real VT Markets account.
