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So the big new is that the Dow screamed past 16000 yesterday. Screamed is a bit too aggressive of a word but that is a new number. I believe the SP 500 will hit 1800 in short order to complete the twofer. In the meantime, look at how that has changed the realized volatility landscape below.
The market is kind of poking along in an upward fashion. With most global news ok, there is not a big reason to sell off yet. The gloomy unemployment reports are keeping the hopes of cheap money alive for the short term. On Wednesday afternoon, I was running a normal scan getting ready for our Platinum class at Option Pit where we take a deeper dive into specific trades.
I noted FSLR had one of the higher IV’S over realized for the past 60 days. The name also was one of the top performers in tech when the rest of the NASDAQ had been off to the races.
The relatively predictable drop in VIX after the NFP today did not catch too many people by surprise. The real surprise was that it started to happen yesterday.
Note the change in implied volatility on the close Thursday. Pretty much all down the curve IV drifted lower. For the last several NFP reports that have been “taper sensitive” IV continued to stay bid well into the announcement. Not so this time and the market might finally be seeing the writing on the wall going forward.
There is nothing like a day to throw a monkey wrench into the works. Just as sure as we were (at least me) that somehting was going to happen with Syria it now looks as though something might happen with respect to Syria. The difference between will happen and maybe happen has a big influence on how the market prices volatility. What it means is that in the short term nothing really moves while the market prices for the fact that it might.
Right now with 20 Day HV trading around 10.88% the market is just not really moving. Tuesday was a big selloff but even with Fed minutes last week stocks just don't have much push one way or another. Today the market notched .65% up intraday. Still a small change move but not a 17% VIX.
Equities are going to finish with a tough week. The specter of Egyptian unrest, higher interest rates and the Fed tapering was enough to pull stocks from their lofty highs. I will say the reasons for the last two mean that the economy is getting better which should be good in the long run. In the short term the market has sold off 3-4% on the Tapering Boogeyman, so the selloff is not a total surprise.
There was a slight selloff today on what used to be good economic news. Better growth in Europe this time last year would have put us off to the races. The SPX was also almost 300 handles lower. That is right 300 handles. Mark has been writing about how cheap AAPL IV has been and for a comparison AAPL was $130 higher last year in the teeth of the Euro Zone issues.
With AAPL making a $50 move what has been happening to the IV? It has been going straight up. Today AAPL managed only a $9 gain as the rest of the market crapped out. Can Icahn really be the catalyst for a more than 10% move? Didn’t we have shareholder activist funds at the beginning of the year pounding the table to get AAPL to do something?
This morning on CNBC I was asked what I thought the main driver of the market would be in the near future. The anchor suggested it might be earnings. My answer: I do not think so. The issue with earnings is that unless all earnings are either bad or good, they tend to offset each other. Perhaps that is the reason why the SPX has completely stopped moving. Take a look at SPX vol from Livevolpro:
On balance the market looked a little fatigued making record high after record high for the last couple of days. We had a respectable .3 drop in the SPX and a larger than expected move in the VIX to 14.46 up .68. The VIX outpaced a bit which generally means there is some nerves about. The nerves are waiting for a selloff which could happen anytime so earnings will start to get more weight.. Corporate profits have been ok so far so I will be interested to see how long the trepidation lasts. A company that did report great earnings was GS but the stock went nowhere. Let’s take a look.
My kids came back from the beach today with a record treasure trove of sand dollars. My oldest son scooped 30+ by himself. My tally for the year is 1, all year. Same beach but we went at different times. He got the 830 am prime time slot at low tide while I was toiling away in front of my screens. Playing catch up to a 9 year old is tough. I think that little story is a metaphor for the US Equity market and the Emerging Markets. The twin towers of timing and opportunity are lurking in the background.
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.