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.
The ISM report was not great today. On the brightside, bad news is bad news again. Should stocks be at an all-time high with weak economic numbers? The answer is probably not. The steady exit from the emerging markets is continuing apace with investors leaving at a good clip. As far as I can tell, Argentina and Turkey are suffering real issues, but the rest of the EM world is just kind of moving along. It does not matter when money wants to hit the exit, they just jump.
Argentina devalued the peso today along with China providing less than stellar manufacturing data. It all added up to a mad dash for Treasuries and other safe havens like the Euro. What a difference a year makes. It was not too long ago that the run to above 3% in T-bills was a sure thing. At least, over the last few weeks coming into 2014 that is not the case.
The big surprise for me is the lack of interest in volatility into the NFP on Friday. VIX notched its 5th straight decline going into a big number which is something I don’t remember happening in the QE period since the first talk of taper began. VIX could easily pop back up tomorrow but for now I would not trade it.
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.
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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.