As I have been pointing towards in the last few posts, the equity markets have been TERRIBLE at predicting the world is getting better. Every time there seems to be some sort of rally, the SPX and other major index get slaughtered. In each of these cases we have seen VIX, and in a much more major sense, VIX option volatility calling the market on a BS rally. Quite possibly, the only better predictor has been bond volatility, which has been a GREAT indicator of whether the equity markets know what they are talking about or are overly giddy.
Now the question: Do the insurance product buy into this rally? Take a look, and you tell me:
VIX:
TLT
TLT, in particular, seems to point toward a skeptical market. Traders are buying options on this product, and as the VIX sells off, not selling out of call positions. That is a bright red warning sign. Add this to how strong VIX was today, and I think we have a recipe for another trip down. My guess, Italian Debt or the Super Committee are going to cause some major problems next week.
The Trade:
Short Time Spreads continue to be the best trade right now. I would be looking at that spread as a great potential trade
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Graphs from LiveVolPro
