Stocks finished flat on an uneventful trading session. However, the market felt more risk-off with the 1-month implied correlation index and the VIX moving higher. Typically, when the VIX and the implied correlation index move higher, the S&P 500 moves lower. Yesterday was an exception to that.
1. Volatility Index
With the CPI report and the FOMC meeting on Wednesday, I expect implied volatility levels to continue to rise today on both the shorter-dated and longer-dated implied volatility levels.
The VIX 1Day seems very low, heading into a critical CPI report along with an FOMC that will also see the release of the Dot Plot.
The VIX 1Day closed yesterday around 8, and typically, it gets to around 17 to 19 by the day before the CPI report, and I don’t see why today would be any different.
2. 10-Year Yields
Today, we also will have a 10-year Treasury auction, which will follow what was not a great 3-year Treasury auction yesterday. The 10-year has increased sharply in the last two trading sessions and is back to 4.47%.
There is some risk with today’s auction since it comes the day before a CPI and FOMC meeting.
Generally speaking, rates were higher globally yesterday, and now that the next ECB rate cut isn’t clear, the US markets are repricing rate cut expectations following the hot US Job report. 
3. Crude Oil
Also not helping rates was the surge in Oil, which was up nearly 4% on the day. Oil went from being down and out right back to where it was before the OPEC+ meeting.
Now, oil threatens to break out and move above a downtrend that would be a real shock to the inflation and oil bears; all it would take at this point is a push above $79.
4. S&P 500 Price Action
Meanwhile, the S&P 500 appears to have formed a head-and-shoulder pattern or a diamond reversal pattern on the intraday charts. If so, the index could return to the 5,260 to 5,280 region.
5. US Dollar Strength
The dollar continued to rally yesterday, again, another risk-off signal.