Yesterday, SPX down 12, VIX up 1.6 points. Today, SPX up 11, VIX down .6. This points toward a continued ramp up in volatility and fear in the market that is complex enough that the media aren't picking up on it, but simple enough that most traders see what is going on and are not wondering if, but when. Well, based on the action today, I would say soon. Below is a chart of VIX and SPX. Concentrate on the 50 DMA (the red line)
After again flirting with all-time highs, intraday stocks took about a .6% dump this afternoon following the Fed Board minutes release. They are going to continue to the Taper and there were even some hints at raising rates sometime in 2015, although that was just a few hawkish voices. The market had already given back some gains, then teetered into the red for good. The VIX was bid from the morning, so IV seemed to have an inkling of a move.
As we have stated, the SPX and the VIX are acting quite differently than the last time around. Previously, when the SPX was near 1840 the VIX was below 13, closer to 12.50. Now, with the SPX back at 1840 (getting there in a hurry), the VIX is between 13.75-14, and has not been able to break 13.50. In fact, adjusted for underlying price, SPX IV has basically stopped falling over the last 25 points or so. Take a look:
In the last 3 days, the market has rallied about 30.00 dollars in the SPX. Knowing that, traders would expect the VIX to have gotten completely pasted as traders dumped volatility. Take a look at how S&P has moved and how VIX has moved.
More testimony leads to another flat day for the market. After the rally of the last 3 days a rest was needed. The strangest thing is the volatility crept into the market and is just as fast leaving the market. VIX cash was down .20 today and all the volatility products pretty much followed suit.
Stocks got a breather today with the SPX up just .10% to 1798 near the close. VIX somehow forgot about the weekend and should end up around .02 today. For the first time in a while, no news produced a market that did not sell off like the last several weeks. Stocks did not give back the low volume rally on Friday either. It feels like if the emerging markets yawn, stocks here do nothing, and there was a bit of that today.
There is little doubt that stocks are a different beast at the start of 2014. As we look at the VIX tank this morning, the index is getting to the magic number of 16%. That is a 1% move per day for the big SPX index. For 2013 the 360 day average realized volatility, take a guess, was 11.6%. The 10 day HV right now is almost 20%. Stocks have been smoking, mostly in the down direction.
Looking at how volatility has moved in the last couple of days, one would think that tomorrow's non-farms do not matter and that the markets are signaling all clear. Take a look at where March IV is relative to the SPX now, and where it was last Friday.