Stock Market Volatility Decreases After House Passes Debt Ceiling Deal

U.S. President Joe Biden delivers remarks during a Cabinet Meeting at the White House on June 06, 2023, in Washington, DC. Biden spoke on the U.S. economy and the bipartisan deal to raise the debt limit. KEVIN DIETSCH/BENZINGA

The CBOE Volatility Index (VIX), tracked by the ProShares Ultra VIX Short Term Futures ETF (BATS: UVXY), was dropping over 7% on Thursday after the U.S. House of Representatives passed the debt ceiling agreement.

U.S. Speaker of the House Kevin McCarthy (R-CA) walks through Statuary Hall in the U.S. Capitol Building on May 30, 2023, in Washington, DC. Later today the House Rules Committee will meet to consider The Fiscal Responsibility Act, a bill made after a deal House Republicans and U.S. President Joe Biden’s negotiators struck up to raise the debt ceiling until 2025. ANNA MONEYMAKER/BENZINGA

Of the members who voted, 314 were in favor of President Joe Biden and House Speaker Kevin McCarthy’s borrowing limit deal.

The news caused the S&P 500 to open higher before falling to trade mostly flat ahead of key jobs numbers expected on Friday, the data which will be taken into consideration when the Federal Reserve meets on June 13 and June 14 to decide whether to continue hiking interest rates.

The VIX has been falling consistently since May 25, indicating a low period of volatility in the stock market as traders and investors await the Fed’s decision. If the VIX continues lower, it will eventually reach 15.68, which is a key level for the market as a whole because the VIX hasn’t closed a trading session under that area since Feb 20, 2020, prior to the pandemic-induced market crash.

If the VIX tests the area as support and bounces up from it, volatility will increase for at least a short period of time. Traders wishing to trade the volatility in the stock market can use MIAX’s SPIKES Volatility products. The products, which are traded on SPIKES Volatility Index (XMIO: SPIKE), track expected volatility in the SPDR S&P 500 over the next 30 days.

On Wednesday, the VIX popped up higher after printing a doji candlestick on Tuesday, which Benzingaaa called out was likely to happen. On Thursday, the VIX was falling lower after breifly popping up from its opening price, which has the index looking to print an inverted hammer candlestick.

If the inverted hammer candlestick is recognized, the VIX may pop higher oN Friday. If that happens, traders who are bullish on the stock market want to see the VIX form another lower high, which could indicate the VIX’s downtrend will remain intact.

The VIX’s most recent lower high within its downtrend was printed on Wednesday at 18.40 and the most recent lower low was formed at the 16.98 mark on Tuesday. If the VIX pops up above 18.40, the downtrend will be negated and an uptrend could be in the cards, which could signal a retrace ment in the general market.

The VIX has resistance above at 17.71 and 19.43 and support below at 15.68 and 14.10.

Produced in association with Benzinga

Edited by Alberto Arellano and Joseph Hammond