So I thought I had to write today's daily SFO. I didn't, but I had already written my piece. I thought I would post it here. Keep an eye out for tomorrow Daily SFO by me!
The market is getting hammered today on a bevy of bad news. The US trade deficit is at its worst level since October 2008. There were also problems coming out of China, the growth there has been more sluggish than many have hoped. Another factor is the FOMC news. Yesterday the news that the FOMC would continue to buy debt cause the market to rally somewhat from what was generally a bad day. I think once traders think about what the FED is doing and why, it becomes a much more bearish meeting than initially it might seem on its surface. The FED basically came out and said that they do not think that the economy is doing well.
All of this bad news is causing a multi standard deviation sell off in the SPX which was at as of 11:15 EDT down about 27 points. I would not be shocked if we continue to sell off the rest of the day. Keep an eye on the final half hour of trading, during major moves the market has a tendency to really extend losses or make almost all of its losses back.
On the volatility front not surprisingly the volatility indexes are pointing upward. Although, not as much as a trader would think for a move like the one we are seeing. The VXX (a much better judge of IV than the VIX) is only up about 1.50 points. In similar moves in May and June we would have seen the VXX up at least 2 full points. This points to the fact that IV was already trading over realized volatility, and the market was already fearful of some sort of sell off. It also points toward this rally not being overly extended.
On the interesting trade front not surprisingly there is heavy put buying in the QQQQ’s, the SPY, the RUT and IWM, and the NDX. In IWM, for instance the ratio of puts trading to calls trading is about 3 to 1; in XLF (the financial ETF) it is even greater at 5 to one. My guess, most of this trading is to protect existing long positions, although I have seen some major orders that appear to be outright buying of puts.
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