Well, like the Greek referendum in 2012, they came, they voted and stocks rallied. I am talking about the Crimean’s who don’t seem to want anything to do with the rest of Ukraine. How it all shakes out is a bit of a mystery, but some very select Ukrainians and Russians will not be able to go to their ATM machines anymore when they fly to London or New York. That message hit loud and clear as both Russian and US stocks rallied back a bit today.
At the money volatility got hit in all the big indexes as you can see from the Livevol Term Structure slice below.
The VIX kept winding its way higher and skew keeps winding its way higher. Stocks in general today were a mixed bag, with the SPX down .3% or so. The darlings got hit (FB, PCLN), but a good chunk of stocks were up on the day. It is tough to justify today’s VIX on today’s equity movement.
The panic rise in the VIX is from what might happen come Monday. See here how the VIX cash spent most of it day running and then selling off, only to get running again and level off into the close. A 1.6 point move in a 16.22 VIX with a .3% SPX index move is a signal for a good size move, up or down.
I am of the belief that politics will trump economics when it comes to the stock market. What I mean is, one politician can do more to destroy (or help, but rarely) an economy with the stroke of a pen than all the good earnings reports combined. Lately, that politician has been V. Putin since the Russians loss at the Olympics. He has been all sorts of grumpy and decided to take over a small piece of the Ukraine to make himself happy.
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.
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Despite the headwinds of the Shutdown and the rollout of Obamacare, employers are hiring again. An economy that is growing and creating jobs is a good thing. While there was some concern about the Taper, that does not look like it will happen soon. That could change next week, but the soft landing is what the market is looking at.
A client of ours sent me a stat that said, “Only 2 down days in last 14 for SPX leading into the official end of q/e........un-freakin -real!” I have to share that sentiment. While I have not been betting the market is going to go down I been thinking it would not go up this fast.
I gave up a long time ago trying to figure out why the market does what it does but at this point my guess is ….relief. The equity market is possibly quite happy that the Fed will start to exit. I guess we will see tomorrow. Either way it is a big rally on lots of unknowns.
Today we have another sleepy day moving into the weekend. As I write this VIX Is up about .18 to 13.15 but probably will not be there for long with the volatility futures hovering just up for the day. As catalysts go, the consumer confidence number hit a 6 year high and that did not do much to push the market into higher territory. My closet theory is the US budget talk is coming again and there has been a solid two year history now of how destabilizing that patter can be. The current back and forth is not what I would call a bullish conversation. The market in 2013 has weathered the payroll tax hike and spending cuts in, well, record fashion. That should make the Keynesians go back to their drawing boards. The
The earnings season has been a mixed bag so far. Mark commented about it on CNBC yesterday morning and the fact that IV is not really taking off. VXX is making year lows today and the IV in the SVXY (Pro Shares Short VIX futures ETF) is making a 52 week low today. Even with VIX cash up the VIX futures compressed a bit. The only thing cheaper than the IV is the realized volatility clocking in a at 7.27 for the SPX. The low volatilities seem to set a table for something higher down the road but we will need a catalyst. The earnings season has not provided one and the muted movement is having an effect on the skew in FB.
What a difference a day makes. The relatively subdued moves yesterday gave way to an explosion after the close when the market decided Big Ben has some teeth left after all. I will call it his reiteration of a reiteration of Fed policy. The market liked the way he spoke live as opposed to the dour old minutes they released. Either way the market loved it. Did the volatility love it?
I guess the little snapshot on the blog says it all. For the last two years the market has been at the mercy of the next Fed announcement. “Are they going to save us again?” Like the big spider in the picture all market players are under the dominion of the FED. At the same time I am going to give credit to Big Ben because this is the first non-action after a Fed meeting release we have seen in quite some time. He might have pulled this off. The market is getting use to the idea of higher rates, maybe, in the future and the end of support by extended bond buying is now in range.