Better Luck Next Time

Market Note :: June 29, 2025

Preamble

Welcome to my weekly market note where I explore what has my attention in markets and share all that’s happening in my trading systems. I am often looking for (and will highlight) notable shifts, extremes, and divergences that catch my eye. I’ve found these can be the whispers that precede the market making an overt statement.

There’s a glossary at the bottom of the note that clarifies some of my terminology. I also host chats about each market note and trade updates in which paid subscribers can follow up with questions and comments. Use the link below to join those chats.

For those of you who want more, I share my daily read of markets and volatility on X @vixedsignals and in Substack Notes. All of that content is free.

Lastly, please read the Disclaimer at the bottom of this note. It’s important.

With that said, let’s get after it…

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Performance Snapshot

More details are provided in the K.I.S.S. section

2025 Portfolio P&L: +3.8%

2025 S&P 500 Return: +3.4%

2025 Portfolio over/underperformance: +0.4%

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The Bird’s Eye

View from ahigh

Last weekend it looked like bears might finally get their shot to take equities lower. Not long after the Sunday night futures open, those hopes were dashed and the door they thought they’d storm through was slammed shut and bolted. Better luck next time.

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Monday set the tone for the week as tensions in the Middle East subsided, oil got crushed, stocks ripped, VOLs collapsed, the Dollar took a nosedive, and interest rates dropped. The rest of the week was more of the same. We closed Friday with the S&P and Nasdaq near their new all time highs, VIX at a new closing low since Liberation Day, and the market looking ahead to a holiday-shortened week.

The Nasdaq led stocks most of the week but when it needed to rest on Thursday, small caps and banks stepped up, and then on Friday the Dow took over. This is the type of rotation that, if sustained, can send VIX into the low-teens while equities grind relentlessly higher. If there’s kryptonite for bears, it’s a mechanically sound market that rotates away from pockets of weakness.

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The Market’s Mouth

Straight from the source

It wouldn’t be difficult to make a fundamental case for why fixed income markets should be trading lower (interest rates higher) right now. You could point to the Big Beautiful Bill that threatens to add trillions to the deficit, which would require a huge supply of new debt. Maybe it’s inflation concerns that seem to lurk around every corner. Or maybe it’s the stubbornly strong U.S. economy that keeps Powell’s finger off the “cut” button. Yet, for three weeks in a row, bonds have traded higher.

Maybe this move is simply some mean reversion at play and we’re one bad bond auction away from a spike in rates. But similar to how it would have been costly to fight the ongoing two month rally in stocks because of fundamental reasons like a hot war in the Middle East and trade wars everywhere else, the current message from the fixed income markets is that rates are heading lower.

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Under the Hood

Volatility, Correlations, & Dispersion

Below is a video analysis of what I was watching in the volatility complex last week and what I think it means going forward. I did not discuss the impacts of this coming Monday’s quarterly OpEx or the holiday-shortened week. TL;DR: short weeks put downward pressure on VOLs as theta (time decay) accelerates, which induces market