I guess the Russians not invading the Ukraine is enough for new all-time highs in the SPX. I have not gotten in the way of this market yet, and will not start now. The thing I am looking for is what is on the horizon that will make IV move next. Most likely that is the employment numbers this week.
After again flirting with all-time highs, intraday stocks took about a .6% dump this afternoon following the Fed Board minutes release. They are going to continue to the Taper and there were even some hints at raising rates sometime in 2015, although that was just a few hawkish voices. The market had already given back some gains, then teetered into the red for good. The VIX was bid from the morning, so IV seemed to have an inkling of a move.
More testimony leads to another flat day for the market. After the rally of the last 3 days a rest was needed. The strangest thing is the volatility crept into the market and is just as fast leaving the market. VIX cash was down .20 today and all the volatility products pretty much followed suit.
Stocks got a breather today with the SPX up just .10% to 1798 near the close. VIX somehow forgot about the weekend and should end up around .02 today. For the first time in a while, no news produced a market that did not sell off like the last several weeks. Stocks did not give back the low volume rally on Friday either. It feels like if the emerging markets yawn, stocks here do nothing, and there was a bit of that today.
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.
As 2014 continues with the not much happening award, there are some big mark downs going on in the volatility markets. Stocks are sitting around, but volatility in the volatility products are hitting some very low levels.
Take VXX turning in 38% implied volatility with NFP still to come on Friday. It feels like paper has all but taken out the possibility of a move in VXX for this week.
I don’t know if it will happen tomorrow or the next day or sometime in January, but VXX will rise off the mat again. The poster child for decaying products turned in another one of its stellar performances in 2013 with the shares down around 66% on a split adjusted basis. Noteworthy as well is that the 30 Day IV is in the basement too at around 41.99. You can easily buy IV for VXX in the 20’s and 30's on very short duration.
The market is not moving a whole lot today in anticipation of what the FOMC is going to decide on bond purchases. I don’t know for sure, but something between a small Taper and no Taper. With the House and Senate coming up with a medium term spending solution, they can squabble in relative peace trying to accomplish something. The FOMC has surprised us for a bit and the Rope-a-Dope tactic seems to keep the equity markets pretty buoyant.