The one thing that has been stunning about this sell off has been the total lack of volatility as seen in the VIX. The VIX barely touched over 30 on Friday despite the middle of a 60 point sell off and a new low below levels from August. By the end of the day the VIX closed around 27. Today we saw the same thing, the SPX rocketed higher on the open and VIX got killed. Then by days end the entire rally was gone, and in fact the SPX had been down as much at 15 at one point. But take a look at VIX with the market up 14 and the market flat...coming off a huge sell off.
The SPX has a super ugly day today, dropping below 1900 and nearly 50 points. The SPX is now with in points of threatening the august lows. Yet, the VIX bore little reaction to today's market sell off. A day where the SPX is down more than 2.5% and the NDX was down almost 3% saw the VIX barely up 4 points. Yes, the VIX is already somewhat high at over 20%, but when we see a sell off like we saw today, and outright panic in the Biotechs, one has to wonder what is up. To put things in perspective, take a look at the lack or reaction in VIX (the red line) relative to August.
For those of you that think China is the downfall of the US market, I give you one chart:
Market volatility took a bit of a ride today as the pre-open smack led to, what else, a rally. We got some Fed Governor news on blaming the winter but I feel like the lame jobs report was set up on Wednesday’s ADP number. $50 per barrel oil is not creating any jobs in that sector either. The pre-open action lately has not been a very good indicator of what is going to happen during the trading day.
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.
It looks like the Greek Drama happening overseas ended up being a comedy more than a tragedy. That is good for investors and good for the Greeks. We will revisit the issue in June but for now that looks like the only thing that was holding up implied volatility.