We had another day of near all-time highs with banks again leading the charge higher. I think the IV is getting too cheap but that will be a story for the next blog. I think the interesting story is coming out of Turkey. Is it the real story or the non-story that is taking shape on the coup attempt for a NATO member? The ETF that tracks the Turkish (TUR) market was down around 6% today.
It seems since the August Flash Crash this is the cheapest volatility has gotten since before that time. When I look at a vol chart it seems there is this year and last year. When I look at BAC it is no exception. There was last year’s IV and this year’s IV and now we have very low IV going into earnings. I read this as the market expects little out of this earnings cycle. Except someone forgot to tell the equity markets as they have raced to new highs.
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One of the most disturbing volatility patterns is VIX up, SPY (or SPX) up. Vol should decline into the face of a rising market. If it does not that is traditionally a tell that stocks will sell off at some point in the near future. If I knew when that was I would tell you after I bought a boat load of SPX puts. That date appears to be sometime next week.
Besides the airlines this cycle (AAL down $13 since earnings) AAPL has taken it on the chin with shrinking iPhone and iPad sales. The big one is the iPhone which generates most of AAPL’s dollars. Newsy rumors today that AAPL vendors are expecting much smaller orders cratered AAPL stock. This is after a rough ride from $100 after earnings. For a company that has mostly done everything right since 2000 it is a tough road.
Stocks got a little lift today on what I do not know. Draghi made some veiled references but for the most part the Euro kept up it's inexorable climb along with the JPN YEN holding up at year highs. Who would have thought the dollar would be in the tank and the two most troubled trading blocks enjoy bouncy currencies. Dollar weakness should equal gold strength and we did not see that today. The 1 day hold in GLD killed the momentum and the IV.
Stocks continue to rally with the earnings surprising just about everyone. Day to day the SPX finds a way higher and higher for no apparent reason. The squeeze in commodity names has the whole sector trading again. Witness the dead turnaround in the miners today. If all that excitement is too much for you, boring old INTC might work.
Somewhere along the line stocks stopped worrying about China, oil prices and mass currency devaluations. My sense is that stocks like certainty and for now neg interest rates, while crazy, are at least certain in several G7 countries. Let put that aside as stock rocked to the sandbagging JPM as the financials showed up today. The big daddy lately has been oil and with the Doha OPEC talks this weekend my thoughts turn to gamma.
Stocks got a nasty jolt this morning when the ECB took a step into the unknown with a continued push for negative interest rates in the EU. 6 years ago when things needed a jolt I can see the Monetary Priming have a material affect that was so lacking in the 1930’s. Now that we are in round 6 or 7 the diminishing returns are in. Volatility got a massive bid up.