The S&P 500 has blown up higher and is now closer to 2100 than 2000. Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol enviornment. It is pretty clear in the chart below:
1. As we rally longs are hedging. This is the bull case. Baseically, those with long positions like being long and are buying hedges with the market at all time highs and the VIX at, relative to longer term trends is somewhat low.
I know there continues to be some speculation about whether the Fed will raise rates in the 1st half of 2015, right now the answer is a resounding NO. In fact I think the Fed Funds rate stays at 0 for all of 2015. Here is why they have TONS of cover. Lets look at why:
1. Employment. The unemployment rate. While the heavily reported U-3 rate is back to normal, the more important U-6 rate is still at levels from October of 2008, no where near normal levels. Check out the spread between U-3 and U-6.
As option mentors we do a lot of teaching on VIX. When explaining the VIX one thing we like to discuss vol cycles. The idea that the VIX has cyclical levels from low to somewhat low, to somewhat high, to high. Clearly when the VIX was in the 10's and 11's the VIX was in a cyclically low level. However, that appears to have changed (despite the sudden drop in realized volatility). Even throwing out last months vol pop one should be able to see that the VIX pattern shifted
Stocks had a ho-hum day today unless your name is AAPL. The late afternoon bid for BHI by HAL might be a sign the oil services business is not dead yet. The Russians are making lots of noise in the Ukraine again but that did not stop the SPX from making yet another new high. It was a small high but a new high nonetheless.
Stocks are struggling today to make it to another record for the S&P 500. As of right now a little push at the end of the day should do it. Without anything news worthy I don’t expect stocks to do a whole lot. A stock that has been doing a lot is BABA.
Alibaba Group Holdings, BABA has been on a tear since mid-October as it held up better than just about everything else with the stuff hit the fan not too long ago. Chinese equities have done ok since then but nothing like BABA. Yesterday was the big Singles Day retail extravaganza and BABA pulled in more of their share.
This is the 3rd or 4th recent record for the S&P 500 as I cannot remember because we have had so many. Stocks are seeing renewed buying interest after the election and for now the wind is at the markets back. There is not much wind in option premiums. All the bears got their time in mid-October and for now that is all they have to hold onto. The bump from the BOJ and ECB has put the kibosh on the bears hopes for now.