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Euro Bust

Stocks made a little run down today on bad UPS earnings and some worries about the weekend vote in Greece.  If folks are paying up for SBUX coffee, things cannot be that bad so we will blame the Greeks. Even after the ECB made their made policy announcement the Euro continued to sell off.  I guess the question is why would you buy European sovereign debt?  Spain yields nothing, you have to pay the Germans and Greece is always on the brink of default.  The 10 year Treasury is still looking pretty good even after the dollar rally.

 

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Draghi killed the VIX

The ECB finally announces a bond buying program of their own.  We will call it Euro QE.  At the rate the Euro is crumbling there won’t be much left of the bond buying program in dollar terms as the Euro rushes pack to parity with the US dollar.  Stocks love the QE since they takeoff after a whiff of it is announced.

Witness the 5 day demise of the VIX.  The near 23 handle on Friday last week was reduced to 16 today.  At least in the short term the big moves we have had in 2015 should start to subside.  It is hard to remember the 8% realized vol markets of 2014 since we have averaged over 14% since the beginning of the year.  Intraday realized is even higher.

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Our Founder's VIX Analysis on Mad Money

Mark Sebastian our Founder wrote up this analysis on VIX yesterday, in which he described the changes in market volatility over the last few months.

 

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VIX Set For Crazy Settle?

In August of 2013,  the day the VIX of VIX settlement also happend to be the day of the a FOMC announcment that many thought might be when they would announce the beginning of the end of QE in the US.  The night before the VIX cash settled 14.91.  With little to no movement in the SPX. the VIX opened up much higher and settled to almost EVERYONE's surprize at 16.42.  A huge pop.  Check out the intra-day range the index had.

Chart - ^VIX - CBOE Volatility Index_window_screenshot_6.png

LivevolX (r) www.livevol.com

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The Interest Rate Boogie with the Homebuilders

We are finishing a volatile week for global markets and it most likely will stay that way until the ECB comes up with some announcement on Jan 22nd and/or the Greeks decide to elect a new government by the end of the month.  Earnings reports so far have been mediocre and without the promise of domestic QE, stocks have not been able to recover.  Short term things will stay choppy.

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Seismic shifts in the Euro Zone

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Any domestic news today was overshadowed by the Swiss pulling the currency peg on the Euro.  The old 1.2 SWF to Euro is gone as the two quickly swung to parity.  This led to a rip in the Swiss stock market to the tune of a 10% drop.  To put that in perspective the SPX would be down 200 handles on the open for a move like that.

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Stocks are in a ball of confusion, but not too much

I am not sure what the confluence of news was that made folks nervous but it seemed to be a combination of retail sales, no ECB QE and the latest weak data out of China.  That was enough to drive VIX into the 23 handle briefly and set the VIX future curve backward to Aug.  We did get a close of Jan VIX close Aug however.  The vol traders could not hold the Jan too backward overnight.  They could not push it lower however so a little more movement is still expected.

http://www.vixcentral.com/

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Say Good Bye to 11 VIX...For Now

There are many people smarter than us calling for a new vol regime.  While we are not 100% sold that is the case, we can say with certainty that a VIX with an 11 handle is going to be very difficult to get to in the next few months.  Why?  Realized volatility.  The market is moving again, something it did not do for months on end.  Take a look at 10, 20 and 30 day HV relative to SPX implied vol.

Chart - ^SPX - Standard & Poors 500 Index_window_screenshot_7.png

LivevolX (r) www.livevol.com

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The Frontlines of the drop in oil

 

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For now, oil has no bottom.  The drop is way beyond the falling knife stage and into the flying guillotine stage.  Markets tend to worry when things run in one direction and oil prices have been a one way freight train.  At this point it looks like the price of oil won’t stop dropping until the producers stop, well, producing.  One stock enjoying the crash in oil prices is FRO.

FRO is an oil tanker company that should benefit from the all the oil countries want to buy but could not afford at the start of 2014.  FRO was a $1.5 stock in late Nov and now it is on its second gap as it trades just over $5 today.

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The sell off lacks VIX

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2015 is starting off as the year of many swings.  For all the big daily moves in 2015, equities have not really gotten anywhere.  The post-FOMC rallies are fueled by the notion of lower rates and we run.  Then the sad realization of why we need lower rates hits and we sell off.  The only think I can say for this year is that the swings are solid and VIX is off the basement floor.

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