VIX PLUMMETS AS COMPLACENCY RISES
David Tepper’s “win win†market is slowly unfolding as more and more investors begin to view the equity markets as invulnerable to the downside. Recent investor sentiment surveys show sharp increases in bullishness, but one sentiment indicator has remained stubbornly high – the VIX.
That has changed in the last two days as the VIX plummeted almost 15% in two sessions.
This is a sure sign that complacency is on the rise in the near-term. The last two times investors were fooled into believing that sustained economic recovery was around the corner was January and April of 2010.
The VIX fell below 17.50 before each event as complacency rose rapidly before the economic reality punched investors in the mouth. Today’s level of roughly 19 on the VIX shows that investors are still somewhat hedged for downside risk, however, far less than they were just a few days ago.
Fear on the decline means complacency is on the rise.
http://pragcap.com/vix-plummets-as-complacency-rises
|
|
VIX 01 (Jun 09 - Oct 11)
Re: VIX - CBOE Volatility Index
by winston » Tue Oct 12, 2010 9:39 pm
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Fri Oct 15, 2010 8:01 am
The Odds of a Crash Are Higher Than You Think By Jeff Clark
Thursday, October 14, 2010
We've seen some pretty weird stuff this year...
There was the "flash crash" back in May, when the Dow plummeted 1,000 points and then recovered it all within just a few minutes. We've seen a persistent bid beneath stock prices, which has held the market up even though investors have pulled money out of equity mutual funds every single month...
Interest rates have fallen to historic low levels while the supply of bonds has grown exponentially. Precious metals and commodity prices have exploded higher as the Fed tries to battle deflation. And the Hindenburg Omen made headlines in the financial press and then fizzled like a wet firecracker.
Like I said... weird.
But this takes the cake...
Volatility has collapsed.
The Volatility Index (VIX) – the market's best measure of investor fear – is now trading below where it was just before the flash crash.
Am I the only one who's scared to death?
The economy stinks. The mortgage market is riddled with fraud. Banks aren't lending money to anyone. And taxes are going up.
Yet, the stock market is partying like there isn't a care in the world.
Of course, I understand the bullish argument. If the economy strengthens, stocks will go up. And if the economy doesn't improve, the Fed will print enough money to force stocks higher.
Is it really that simple?
Somehow, I doubt it. After all, Internet stocks could only go higher in 2000. And real estate only goes up. Right?
Pardon me if I don't believe all of the world's problems can be solved by central banks printing money.
But I digress... Let's get back to the point of the day.
Despite all the oddities in the financial markets this year, no one sees much risk. The Volatility Index is trading near its low for the year, and investors seem to believe all assets can only go higher. They think it's a one-way bet for stocks, bonds, and commodities.
But markets don't work that way.
Periods of low volatility are always, always, ALWAYS followed by periods of high volatility. And in the financial markets, high volatility means selling pressure.
I was bearish in the weeks leading up to the flash crash. The market's action seemed artificial and manipulated. And I wrote about it until I bored myself with the subject.
Then we crashed.
Now, I can't tell you we're headed for the same destination this time. Markets are never that poetic. But asset prices are expensive and there's a lot more risk to the stock market than the Volatility Index seems to indicate.
Pick whatever metaphor you like... storm clouds on the horizon, or sharks in the water... dangerous risks are lurking.
Be careful out there.
http://www.growthstockwire.com/1332/The ... -You-Think
Thursday, October 14, 2010
We've seen some pretty weird stuff this year...
There was the "flash crash" back in May, when the Dow plummeted 1,000 points and then recovered it all within just a few minutes. We've seen a persistent bid beneath stock prices, which has held the market up even though investors have pulled money out of equity mutual funds every single month...
Interest rates have fallen to historic low levels while the supply of bonds has grown exponentially. Precious metals and commodity prices have exploded higher as the Fed tries to battle deflation. And the Hindenburg Omen made headlines in the financial press and then fizzled like a wet firecracker.
Like I said... weird.
But this takes the cake...
Volatility has collapsed.
The Volatility Index (VIX) – the market's best measure of investor fear – is now trading below where it was just before the flash crash.
Am I the only one who's scared to death?
The economy stinks. The mortgage market is riddled with fraud. Banks aren't lending money to anyone. And taxes are going up.
Yet, the stock market is partying like there isn't a care in the world.
Of course, I understand the bullish argument. If the economy strengthens, stocks will go up. And if the economy doesn't improve, the Fed will print enough money to force stocks higher.
Is it really that simple?
Somehow, I doubt it. After all, Internet stocks could only go higher in 2000. And real estate only goes up. Right?
Pardon me if I don't believe all of the world's problems can be solved by central banks printing money.
But I digress... Let's get back to the point of the day.
Despite all the oddities in the financial markets this year, no one sees much risk. The Volatility Index is trading near its low for the year, and investors seem to believe all assets can only go higher. They think it's a one-way bet for stocks, bonds, and commodities.
But markets don't work that way.
Periods of low volatility are always, always, ALWAYS followed by periods of high volatility. And in the financial markets, high volatility means selling pressure.
I was bearish in the weeks leading up to the flash crash. The market's action seemed artificial and manipulated. And I wrote about it until I bored myself with the subject.
Then we crashed.
Now, I can't tell you we're headed for the same destination this time. Markets are never that poetic. But asset prices are expensive and there's a lot more risk to the stock market than the Volatility Index seems to indicate.
Pick whatever metaphor you like... storm clouds on the horizon, or sharks in the water... dangerous risks are lurking.
Be careful out there.
http://www.growthstockwire.com/1332/The ... -You-Think
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Sun Oct 17, 2010 5:17 pm
Is VIX Pointing to a Market Correction? By: Abby Schultz
The rally that added 15 percent to the S&P 500 Index since early July may be under threat. At least that's what the VIX may be signaling.
For the year-to-date, the VIX has averaged 23.6, and for the last seven years it has averaged 21, according to Randy Frederick, director of trading and derivatives for Charles Schwab.
The index has traded below 20 most of this week—with the exception of Thursday, when it regained some ground. Still, the index remains below its 2010 average.
But according to Frederick, "it won't stay there for long."
That's because the VIX has a tendency to revert to the mean, which in this case would lead to a spike in volatility.
Secondly, more traders are buying calls on the VIX now than are selling puts, indicating these traders believe "a spike in the VIX is much more likely than a continued slide in the VIX," he added.
Frederick keeps track of the "implied volatility gap" between puts and calls. When that gap gets to more than 200 percentage points — which it was on Monday — there's a good chance the market is heading lower, he said.
"Two of the last three times that happened (mid-January and mid-April of this year) the market went into a correction phase within a couple of weeks," Frederick said in a note to clients.
One other technical sign on Frederick's watch list: the S&P 500 is likely to hit the Golden Cross sometime next week.* That's when the index's 50-day moving average crosses above the 200-day moving average.
Typically, the Golden Cross is a bullish sign for stocks. But Frederick noted the S&P 500 Index had actually rise instead of fell, which it should have done, after it reached the bearish Death Cross milestone on July 2.
"I’m not a huge believer in technicals in the equity markets," said Frederick, who pays more attention to options and futures. "If this indicator was completely wrong in July, would it be right to the upside or completely wrong this time."
* (The Dow hit its Golden Cross last week.)
http://www.cnbc.com/id/39673102
The rally that added 15 percent to the S&P 500 Index since early July may be under threat. At least that's what the VIX may be signaling.
For the year-to-date, the VIX has averaged 23.6, and for the last seven years it has averaged 21, according to Randy Frederick, director of trading and derivatives for Charles Schwab.
The index has traded below 20 most of this week—with the exception of Thursday, when it regained some ground. Still, the index remains below its 2010 average.
But according to Frederick, "it won't stay there for long."
That's because the VIX has a tendency to revert to the mean, which in this case would lead to a spike in volatility.
Secondly, more traders are buying calls on the VIX now than are selling puts, indicating these traders believe "a spike in the VIX is much more likely than a continued slide in the VIX," he added.
Frederick keeps track of the "implied volatility gap" between puts and calls. When that gap gets to more than 200 percentage points — which it was on Monday — there's a good chance the market is heading lower, he said.
"Two of the last three times that happened (mid-January and mid-April of this year) the market went into a correction phase within a couple of weeks," Frederick said in a note to clients.
One other technical sign on Frederick's watch list: the S&P 500 is likely to hit the Golden Cross sometime next week.* That's when the index's 50-day moving average crosses above the 200-day moving average.
Typically, the Golden Cross is a bullish sign for stocks. But Frederick noted the S&P 500 Index had actually rise instead of fell, which it should have done, after it reached the bearish Death Cross milestone on July 2.
"I’m not a huge believer in technicals in the equity markets," said Frederick, who pays more attention to options and futures. "If this indicator was completely wrong in July, would it be right to the upside or completely wrong this time."
* (The Dow hit its Golden Cross last week.)
http://www.cnbc.com/id/39673102
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Oct 18, 2010 7:49 am
Weekly Review
The VIX has broken below its range. It gapped lower and recovered, and it has filled the gap. This does not mean the market is overbought and will sell off.
While there is a relationship between oversold and overbought conditions on the market, it does not always tie into volatility.
A correlation sets up at times, as it did during the summer, but that is broken now.
Volatility continues to drop while the market moves higher. There is nothing to suggest a major problem with respect to volatility breaking to the downside right now.
VIX: 19.03; -0.85
VXN: 20.44; -0.19
VXO: 19.43; -0.82
Source: InvestmentHouse.com
The VIX has broken below its range. It gapped lower and recovered, and it has filled the gap. This does not mean the market is overbought and will sell off.
While there is a relationship between oversold and overbought conditions on the market, it does not always tie into volatility.
A correlation sets up at times, as it did during the summer, but that is broken now.
Volatility continues to drop while the market moves higher. There is nothing to suggest a major problem with respect to volatility breaking to the downside right now.
VIX: 19.03; -0.85
VXN: 20.44; -0.19
VXO: 19.43; -0.82
Source: InvestmentHouse.com
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Nov 01, 2010 7:55 am
Weekly Review
VIX. The VIX managed to rise through last week given the lateral uncertainty in the SP500. Each day SP500 was up or down and reversed once to three or more times in one session.
Volatility crept higher. Note that as volatility on SP500 crept higher, NASDAQ rallied. Thus, volatility fell on the NASDAQ volatility index. There is still very low volatility, and some say that means it is time for a selloff.
That is not necessarily the correlation volatility in the stock market was showing in the summer months. That was broken recently. Now we may get a pullback or correction as the market is bouncing up to the April peaks.
There is talk of a correction by some very smart people. That is why volatility is creeping to the upside, but it does not mean much now.
VIX: 21.2; +0.32
VXN: 22.24; +0.59
VXO: 21.33; +0.77
Source: InvestmentHouse.com
VIX. The VIX managed to rise through last week given the lateral uncertainty in the SP500. Each day SP500 was up or down and reversed once to three or more times in one session.
Volatility crept higher. Note that as volatility on SP500 crept higher, NASDAQ rallied. Thus, volatility fell on the NASDAQ volatility index. There is still very low volatility, and some say that means it is time for a selloff.
That is not necessarily the correlation volatility in the stock market was showing in the summer months. That was broken recently. Now we may get a pullback or correction as the market is bouncing up to the April peaks.
There is talk of a correction by some very smart people. That is why volatility is creeping to the upside, but it does not mean much now.
VIX: 21.2; +0.32
VXN: 22.24; +0.59
VXO: 21.33; +0.77
Source: InvestmentHouse.com
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Nov 08, 2010 9:23 am
Weekly Review
VIX. Volatility is holding at a level hit in mid October. Since it is at a very low level, people are saying we can expect a pullback in the market. We could the market is overbought near term. It has had a lot of good news, it has been moving higher, and it has not come back for any kind of correction.
That is one thing and VIX the another. Its correlation with the indices is somewhat broken right now. It was very much moving in lock step: It would rise, and the indices would fall. When it got low, you could anticipate a bounce back. That is not happening now. It can get low for a long time, and the market can still rally.
During this point in 2004, 2005, 2006, and 2007, the market was rallying to the upside. Volatility was very low. It started to rise in 2007. The market was starting to top, and eventually it did top and cascaded lower. That is how volatility works when it gets very low and there is no correlation to the market.
It tends to show a top is coming when it advances as the market advances as well. The relationship is broken right now, so do not anticipate that low volatility automatically means a correction is coming. I am not saying a correction is not coming, but using volatility to determine that is incorrect.
VIX: 18.26; -0.26
VXN: 18.67; -0.87
VXO: 17.76; -0.57
Source: Investment House
VIX. Volatility is holding at a level hit in mid October. Since it is at a very low level, people are saying we can expect a pullback in the market. We could the market is overbought near term. It has had a lot of good news, it has been moving higher, and it has not come back for any kind of correction.
That is one thing and VIX the another. Its correlation with the indices is somewhat broken right now. It was very much moving in lock step: It would rise, and the indices would fall. When it got low, you could anticipate a bounce back. That is not happening now. It can get low for a long time, and the market can still rally.
During this point in 2004, 2005, 2006, and 2007, the market was rallying to the upside. Volatility was very low. It started to rise in 2007. The market was starting to top, and eventually it did top and cascaded lower. That is how volatility works when it gets very low and there is no correlation to the market.
It tends to show a top is coming when it advances as the market advances as well. The relationship is broken right now, so do not anticipate that low volatility automatically means a correction is coming. I am not saying a correction is not coming, but using volatility to determine that is incorrect.
VIX: 18.26; -0.26
VXN: 18.67; -0.87
VXO: 17.76; -0.57
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Nov 15, 2010 6:49 am
Weekly Review
VIX had a good spike on Friday, rising 10.5%, and it came off the lows where it gapped down to the prior week. Some would say volatility was at a point where the market needed to correct. It is not really the issue right now.
The correlation between volatility and market moves is not as it was, although it obviously rallied as the market sold off this past week. I am not going to get too wrapped up in volatility right now.
Maybe it will set up a new correlation, but that usually happens when the market is not trending, but moving laterally. When it starts trending, that changes the whole relationship, and we have had a trending market of late.
VIX: 20.61; +1.97
VXN: 22.55; +3.18
VXO: 20.35; +2.67
Source: Investment House
VIX had a good spike on Friday, rising 10.5%, and it came off the lows where it gapped down to the prior week. Some would say volatility was at a point where the market needed to correct. It is not really the issue right now.
The correlation between volatility and market moves is not as it was, although it obviously rallied as the market sold off this past week. I am not going to get too wrapped up in volatility right now.
Maybe it will set up a new correlation, but that usually happens when the market is not trending, but moving laterally. When it starts trending, that changes the whole relationship, and we have had a trending market of late.
VIX: 20.61; +1.97
VXN: 22.55; +3.18
VXO: 20.35; +2.67
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Nov 22, 2010 9:00 am
Weekly Review
VIX. The VIX tumbled lower to end the week as stocks tried to rebound off of their early selling.
Tuesday volatility gapped to the upside, and then gapped right back down. It is now trading at the October and early November levels where the market encountered a bit of trouble.
There is a little correlation setting up now between volatility and market action. That correlation breaks down, it solidifies again, and then it breaks down. Repeat the process.
There may be a correlation developing now, and I would anticipate that the market runs into a bit of trouble here. That makes sense with Thanksgiving week and stocks often having trouble finding traction before they start moving up between Thanksgiving and Christmas.
We may see a little giveback next week based upon the VIX, but it is not a strong correlation at this point.
VIX: 18.04; -0.71
VXN: 19.78; -0.48
VXO: 17.44; -1.05
Source: Investment House
VIX. The VIX tumbled lower to end the week as stocks tried to rebound off of their early selling.
Tuesday volatility gapped to the upside, and then gapped right back down. It is now trading at the October and early November levels where the market encountered a bit of trouble.
There is a little correlation setting up now between volatility and market action. That correlation breaks down, it solidifies again, and then it breaks down. Repeat the process.
There may be a correlation developing now, and I would anticipate that the market runs into a bit of trouble here. That makes sense with Thanksgiving week and stocks often having trouble finding traction before they start moving up between Thanksgiving and Christmas.
We may see a little giveback next week based upon the VIX, but it is not a strong correlation at this point.
VIX: 18.04; -0.71
VXN: 19.78; -0.48
VXO: 17.44; -1.05
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Dec 06, 2010 9:23 am
Weekly Review
VIX. The VIX had a tough week. It gapped lower Wednesday, falling Thursday, and again Friday with big chunks. It landed down near its October and November lows.
There is a lot of speculation that that means the market is going to sell. It might and it might not. It was lower back in March and April of this year as well.
What does this mean? When looking at volatility, many people say if it gets too low it means the market is set up to sell. That is really not the case.
Looking at historical charts, volatility can be low for a long, long time and the market still rallies. After a long rally, you should worry when volatility rises as the market rises.
Back in 2007 right before the financial crisis, the market was rising. Then volatility started to rise with the market in that last part of the run. That is not a good thing to see. Looking back to 2000, you can see volatility spiking, starting to rise as the market was ready to peak out.
Not a great thing to see. Right now, we do not necessarily have that. The market is rising, yet volatility is falling.
What I see in the near term with these pictures is a small correlation set up. As the market or volatility goes up and down and they move inversely, you get a rise in volatility indicating a drop in the stock market price.
Then when it falls, you see the market bounce back. When the volatility rises, the market falls. Does this look like much of a correlation? Right now, it is a modest one at best.
Volatility was rising and the market was trending slightly lower, and then as volatility fell, the market spurted higher this week. That is the inverse relationship. It is down to levels that the market hit on other occasions in October and November.
Now the question is if it will mean a pullback in the stock market. The SP500 is at a key level, but NASDAQ, SP600, and the SOX are all moving through their April and November peaks. They could come back to test in a pullback, and that would bounce volatility up somewhat.
That would be fine, but it probably will not be anything major. It will probably be more like what we have seen right here.
VIX: 18.01; -1.38
VXN: 19.77; -1.65
VXO: 17.19; -1.72
Source: Investment House
VIX. The VIX had a tough week. It gapped lower Wednesday, falling Thursday, and again Friday with big chunks. It landed down near its October and November lows.
There is a lot of speculation that that means the market is going to sell. It might and it might not. It was lower back in March and April of this year as well.
What does this mean? When looking at volatility, many people say if it gets too low it means the market is set up to sell. That is really not the case.
Looking at historical charts, volatility can be low for a long, long time and the market still rallies. After a long rally, you should worry when volatility rises as the market rises.
Back in 2007 right before the financial crisis, the market was rising. Then volatility started to rise with the market in that last part of the run. That is not a good thing to see. Looking back to 2000, you can see volatility spiking, starting to rise as the market was ready to peak out.
Not a great thing to see. Right now, we do not necessarily have that. The market is rising, yet volatility is falling.
What I see in the near term with these pictures is a small correlation set up. As the market or volatility goes up and down and they move inversely, you get a rise in volatility indicating a drop in the stock market price.
Then when it falls, you see the market bounce back. When the volatility rises, the market falls. Does this look like much of a correlation? Right now, it is a modest one at best.
Volatility was rising and the market was trending slightly lower, and then as volatility fell, the market spurted higher this week. That is the inverse relationship. It is down to levels that the market hit on other occasions in October and November.
Now the question is if it will mean a pullback in the stock market. The SP500 is at a key level, but NASDAQ, SP600, and the SOX are all moving through their April and November peaks. They could come back to test in a pullback, and that would bounce volatility up somewhat.
That would be fine, but it probably will not be anything major. It will probably be more like what we have seen right here.
VIX: 18.01; -1.38
VXN: 19.77; -1.65
VXO: 17.19; -1.72
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Re: VIX - CBOE Volatility Index
by winston » Mon Dec 13, 2010 7:30 am
Weekly Review
VIX. Volatility broke below the recent lows, but in March and April it was down much lower. Of course, that was before the market sold off and it rallied higher.
Remember that volatility has to set up a correlation, and it is not really doing that right now. Also, volatility can fall down considerably as the market rallies without necessarily being an indication that the market is going to sell off.
It has to have that correlation develop, and it tried to develop in October to November. There was a loose correlation there, but it does not look like that is the case right now.
The market is drifting higher and volatility is drifting lower. People would say the market is apathetic, and that sets it up for some selling. That could be, but it just rallied, paused and tested, and then rallied again.
This was after a very good pullback from late November through early December. It set itself up well, and now it is moving. I am not going to get to upset about volatility right now.
VIX: 17.61; +0.36
VXN: 18.77; -0.29
VXO: 16.52; +0.36
Source: Investment House
VIX. Volatility broke below the recent lows, but in March and April it was down much lower. Of course, that was before the market sold off and it rallied higher.
Remember that volatility has to set up a correlation, and it is not really doing that right now. Also, volatility can fall down considerably as the market rallies without necessarily being an indication that the market is going to sell off.
It has to have that correlation develop, and it tried to develop in October to November. There was a loose correlation there, but it does not look like that is the case right now.
The market is drifting higher and volatility is drifting lower. People would say the market is apathetic, and that sets it up for some selling. That could be, but it just rallied, paused and tested, and then rallied again.
This was after a very good pullback from late November through early December. It set itself up well, and now it is moving. I am not going to get to upset about volatility right now.
VIX: 17.61; +0.36
VXN: 18.77; -0.29
VXO: 16.52; +0.36
Source: Investment House
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
-
winston - Billionaire Boss
- Posts: 114229
- Joined: Wed May 07, 2008 9:28 am
Who is online
Users browsing this forum: No registered users and 6 guests