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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.

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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.

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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.

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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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More of the Same SPX and VIX

We are watching an incredibly orderly sell off of stocks right now.  While last Wednesday we saw a huge reaction in the VIX, since then the market has been down somewhat aggressively,  certainly on an intra-day basis.  However, VIX has moved with a slow orderly basis, essentially not panicking.  In addition, it keeps being sold at the end of the day. 

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No Panic in SPX Sell Off

If VIX is the 'fear index' (it isn't) then today was actually quite worry free.  While the SPX gave away almost 2%, the VIX barely moved rallying only a touch over 2 points and settling below 20.  Recall that coming off a weekend the VIX SHOULD be higher by .75-1% anway.  What does this spell?  Take a look at the chart,  when I am watching VIX and SPX I always look for divergence... times where the SPX is low and the VIX is low too.

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Spotting the SPX Reversal Using VIX

In Tuesday's webinar Options for Stock Traders I discussed how I can use VIX to spot intraday trends.  One of the strongest signals for a reversal is when the market is hitting new lows, but the VIX is failing to hit new highs and/or is actually declining in price.  We saw a clear example of that this morning.  The chart below shows a tick chart of SPX and VIX on the day.

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So on the final day of 2014 the volatility rallies, really?

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With stocks ringing up another banner year the most unloved asset is making a move into the close.  No I do not mean oil.  That asset is volatility.  VIX is up 1.60 to 17.52 as I write this as players are getting very nervous moving into 2015.  The relative volume landscape tells a more enlightening story.

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WTI Options Rally Even as Vol Falls

The OIV which is the VIX of options on WTI is through the roof.  It currently in the mid-fifties.  To put things in perspective, the last time the VIX itself wasin the 50's was in 2008.  So that traders can get a real view of how it is moving I thought I would show a comparison of VIX returns relative to OIV over the last 6 months.

Chart - ^OIV_window_screenshot.png

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