As I am writing this, the S&P 500 is down 20 points in the pre-market, looking to extend its losses from Friday. In order to navigate this weeks markets, I am going to lay out a few scenarios that I see happening tomorrow and how to play each. While it is hard to make a prediction for how long the selling will last, given that this is such a shock to markets and we have only seen one day of trading post Brexit, I will give a few trades that I will be watching, both short and longer term.
Over the last few days, while there has not been a big S&P 500 move, there has been a lot of bearish options activity. Currently the S&P 500 is below 2100, a level that represents the uptrend line from February. It is concerning that we are below it because it could signal a short-term top in the market. What has come along with this break is a flurry of VIX call buying for June and July. Now while most call buying in the VIX tends to be for hedging these purchases were at the 17 and 18 strike. This leads me to believe that these speculators are betting that the Fed meeting next week will spark a sell-off. After Friday's strong job report it increases the likelihood of a hawkish statement.