The IEA came out and said the bounce in oil was only temporary. That caught a lot of the oil market by surprise as many producers and drillers found new lows today. Now we are dealing with a short term, could be long term, gut in oil supplies as OPEC puts the squeeze on competitors. That was enough to foil the bank rally yesterday. The sell-off was half-hearted at best from a volatility point of view.
Ahead of the big premier of Sharknado 2 tonight, I thought it would be fun to look at a potential trade on Comcast, which owns NBC, which owns SYFY, which is showing Sharknado. Do not be surprized if this showing ends up being the biggest broadcast in SYFY history. While SYFY is not a large part of Comcast, whether it actually has an effect on long term earnings or not doesn't matter. I think the ratings on the broadcast will be so high that tomorrow CMCSA might get a small bounce.
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Step into the Wednesday time machine and not much happened between then and today. Traders have been so lulled into a stupor with the lack of movement that they bid volatility up to 15% yesterday when it looked like there was another crisis brewing. As of today no crisis, as holders of GOOG and other earnings reporters rejoice in the upside surprises.
The big action today was in the price of gold. Stocks managed to eke out a new high but gold was really the kicker. Maybe the threat of inflation is back in the game but gold for sure was up around 3.5% today. We had looked at gold volatility in the Option Pit Chat this week and we thought it looked cheap. The 10 day straddles were pricing a 2.10 move and the move today was 4.27. So much for the implied volatility being correct.
As we move into the FOMC minutes release VIX is down around .43 today to 12.21 at midday. In reports past the VIX has generally held steady up to the report but 2014 is starting to look different. The FOMC is probably going to continue to exit their bond buying routine and let the economy stand on its own. They might even signal rate hikes sooner. With the inflation report today it would seem the market wants some inflation.
Stocks made a little rally today on the good economic news in the morning. Much of the early gains went away as the day wore on. For what seems like the 5th time this week, the VIX cannot hold the lows of the day into the close. As I write this, with 30 minutes to go today, the sub-14 VIX came and went with the slow deterioration of sentiment.
Following up on Friday’s action we did get a little pull back in the index skew today. VIX is in a touch and most of the vol. ETP’s might be even or down a touch with the market rolling in down .3%. There still feels like something is brewing out there, but I cannot put my finger on it. Gold is getting trounced since Ms. Yellen is looking more hawkish than dovish. Who knew? T-bonds are still clinging to some near term highs and that always gives me the heeby geebies until the shoe drops.
Stocks sniffed all-time highs again and pulled back from the brink. The simple answer is there is no reason to be running at all-time highs. That was enough to push stocks back off of their shiny new plateau. Since we are a volatility shop, let’s look at the underlying currents. The first stop is SDEX, it's still at nosebleed levels.
Charts by google finance
Stocks rallied yesterday on a dose of good earnings and brisk GDP growth, coming despite the slow down in government spending. It is good news that the US economy continues to grow. As in 2011 and 2012 issues overseas can easily take front and center as they are this morning. The distribution of option volume in the SPY yesterday was not looking great for our rally. Mark rightly pointed out in the blog last night that there was no VIX buy in for the rally. Today he looks pretty right.