The stock market looks like it has had enough of tepid job reports. There were big hopes of 275k plus jobs, but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.
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.
Where did it come from? To keep with the story of the last couple weeks, the OTM puts continue to attract the attention of premium buyers. Maybe the Russian’s massing on the boarder has something to do with it but there is still a bid for OTM IV going into the weekend.
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
Next, if you look at the 3D skew ATM IV is coming in but the further one moves OTM, the rate of decline seems to taper. That would be the highlighted row moving right to left. What that means is there is a lack of willing sellers of downside puts.
The VIX kept winding its way higher and skew keeps winding its way higher. Stocks in general today were a mixed bag, with the SPX down .3% or so. The darlings got hit (FB, PCLN), but a good chunk of stocks were up on the day. It is tough to justify today’s VIX on today’s equity movement.
The panic rise in the VIX is from what might happen come Monday. See here how the VIX cash spent most of it day running and then selling off, only to get running again and level off into the close. A 1.6 point move in a 16.22 VIX with a .3% SPX index move is a signal for a good size move, up or down.
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.
Near the end of the day we have a pretty solid bounce in the broader market with stocks recovering all but 6 or so handles from the previous day’s highs. The reason for the selloff was kind of uncertain, so with just so-so retail sales, things are back up to nicer levels. As Mark discussed yesterday, the IV only made a tepid response so the bounce is not too surprising. The quick rally and inability to make new highs over the last 2 weeks has shaken up the upside skew a bit.