2013 was a blockbuster year for owning stocks. It was a good, old fashioned bull market that we haven’t seen since the mid 90’s or 2007. The most interesting thing is the bubble talk in stock prices. Folks forget where stocks came from. 2011 was essentially a flat year and combined with 2012 the move up was just average. In 2013 stocks started to pick up multiples as investors look for growth and specifically global growth. In 2011 and 2012 stock just did not get a growth multiple.
We are at the end of the year and with all of the big gains in stocks the laggards really stand out. I don’t know where gold is going the next few months but this year it has taken it on the chin. Just as it looked like it would rally into the end of the year, the tax loss selling picked up a head of steam forcing gold to price right on the year lows.
I don’t know if it will happen tomorrow or the next day or sometime in January, but VXX will rise off the mat again. The poster child for decaying products turned in another one of its stellar performances in 2013 with the shares down around 66% on a split adjusted basis. Noteworthy as well is that the 30 Day IV is in the basement too at around 41.99. You can easily buy IV for VXX in the 20’s and 30's on very short duration.
The fact that we are off to the races again today does not surprise me too much (note the Wednesday blog). The good GDP number is being accepted by the market as a good thing. That means the Fed bond buying exercise is getting removed from the equation. Good news is good news again as the Fed starts to exit. I would not be surprised to see higher numbers for stocks in 2014 as global growth starts to pick up.
After yesterday's rally we were not shocked that the SPX gave away a few points. What was surprising was how the IV reacted with the S&P's recovery. Take a look at Jan IV and the S&P on an intraday basis from today:
Without parsing what the Fed said, they are officially starting to wind down their extraordinary measures. Maybe Ben pulled the Congressional leaders aside and said “Hey you idiots, I am done and there is nothing more I can do.” I guess it worked because if we can get sane fiscal policy, things should be ok.
The VIX was in total freefall today. There was a shiver at the beginning but there is no doubt that volatility lost a significant bid today. After all the talk of VIX being up for so many straight days it is mute now. SPY closed just pennies from the all-time high and unless there is some sort of extraneous event, we will make new highs this year.
The market is not moving a whole lot today in anticipation of what the FOMC is going to decide on bond purchases. I don’t know for sure, but something between a small Taper and no Taper. With the House and Senate coming up with a medium term spending solution, they can squabble in relative peace trying to accomplish something. The FOMC has surprised us for a bit and the Rope-a-Dope tactic seems to keep the equity markets pretty buoyant.
In the last few months we have watched the implied volatitly of VIX options basically implode. Some would argue that it is a crowded trade. I would argue that the options are finally finding a normal volatility after trading above an 80% IV for almost 3 years. That being said, the movement in VIX options in the last few days has been extremely odd. In the face of a FOMC meeting that many in the market are afraid of tapering and a VIX that is approaching 16 the Jan options have been unable to break 80%.
For those of you following along with TWTR, this has been an interesting week as the stock has had quite the short squeeze moving higher just every day this week. The momentum trade is clearly behind the stock, and they are taking short to task. Regarding the options, it is interesting to watch the movement of both option IV's and term structure during a squeeze. Take a look at a 5 day chart of Dec and Jan IV:
The market took another look over the edge today and decided to walk back from the brink. Whatever the uncertainty of the Taper brings, the reality that the Fed is peeling back because the economy is getting better. And as President Clinton, said “It is the economy, stupid.” Recall the early in the week the bid for the downside was perking up. This was the snap on Monday