I have been saying for a few days that the coorelation between Oil and SPX is kind of dumb and non sensical. Close observation of the coorelation shows that often SPX sells off with Oil, but once Oil stops selling off SPX would rally.
Now take a look at what happened today. The SPX rallied with Oil mid-morning with a high in the SPX over 18 handles. Then, as WTI and USO sat, the SPX dove on Russia fears and maybe the Fed.
Stock got pasted again today despite the good consumer confidence numbers and retail sales. Oil prices are going even lower and that should be good for the consumer too. The retail index is holding up pretty well despite the 1.5% selloff into the close. What has gotten the VIX futures in such a funk?
By the end of the day VIX cash has shot way up as players are avoiding the risk on the weekend. Maybe there is not a budget bill and folks are nervous. Something is definitely afoot. Maybe the oil drop is too much of a good thing?
Henry Schwartz of Trade-Alert passed along a pretty nifty chart that shows the type of move the market has had in the last 3 days. It is a chart of term strucutre in VIX and implied volatility of VIX options.
Today, the SPX settled down .49 points. This will show up as essentially as a 0 in realized volatility terms as measured by GARCH which is what most brokerage firms use to measure HV. But does that tell the whole story?
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The ECB had their big announcement today and, drumroll, they are going to do nothing else. I think after watching QE in the USA and the never ending printing press in Japan, Mario Draghi is content to let Europe limp along and figure out a way to pay off its bills. He will keep hinting at stimulus and support but will not do anything. He does not have to since the promise of liquidity is enough to keep the credit wolves at bay.
The S&P 500 has blown up higher and is now closer to 2100 than 2000. Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol enviornment. It is pretty clear in the chart below:
1. As we rally longs are hedging. This is the bull case. Baseically, those with long positions like being long and are buying hedges with the market at all time highs and the VIX at, relative to longer term trends is somewhat low.