Nasdaq showed gains in premarket and during the session, mainly on the long side. The S&P 500 delivered most of the gains on the short side yesterday.
Volatility is expected today due to several upcoming catalysts. There may be upward pressure on markets before these events.
Near Term Market Consolidation
A consolidation phase is expected in the near term. Bond yields are rising, with larger increases further out on the yield curve.
With the market showing a clear split between tech strength and broader weakness, we believe volatility is about to pick up. The Cboe Volatility Index (VIX), after lingering in the low teens for months, just closed above 17, signaling rising fear. This suggests traders should consider buying options, like straddles on the SPX, to profit from a significant price move in either direction over the next few weeks.
The primary catalyst is the relentless climb in bond yields, which is creating anxiety. The 10-year Treasury yield is now pushing 4.8%, a level that puts serious pressure on stock valuations, especially in rate-sensitive sectors. We remember the sharp pullback in tech during parts of 2025 when yields spiked similarly, reminding us that this is a major headwind for the market.
This environment supports the recent divergence, where the Nasdaq 100 has gained nearly 4% this quarter while the S&P 500 remains flat. A potential strategy is to use futures to go long Nasdaq 100 contracts while simultaneously shorting E-mini S&P 500 contracts. This pairs trade aims to capitalize on the continued outperformance of a few mega-cap tech names over the rest of the market.
Options Strategies For A Choppy Tape
Despite the warnings of a breakout, we could see a period of choppy, range-bound trading as the market digests these conflicting signals. With the latest CPI report showing core inflation remains sticky at 3.5%, the Federal Reserve has little room to maneuver. For traders who expect this sideways action, selling premium through strategies like iron condors could generate income while the broader market struggles for direction.
