One thing that I always find interesting is how much the Chairperson of the Fed can drive no activity for an entire day. Today, with Janet Yellen speaking 15 minutes before the close, the market held a 5 point range for over 3 hours straight. Yet, before she even began speaking the VIX started to drop. In fact, buy the time she started VIX had essentially priced itself, and any vol selling that was done was quickly recovered. Notice the movement after yellow circle where Yellen starts talking:
The stock market got a gift from the FOMC minutes release today by leaving the status quo largely unchanged. I guess there is enough jazz in the mix with oil prices, Russian solvency and high yield debt tfor the Fed to chew on for a while. There has been plenty of volatility to go around with VIX trading just over 23 today on a run down to the 19s.
Close but not quite there yet. SPY traded 199.75 today as the 200 level hangs like the Sword of Damocles over the market. Everything is feeling good and long equity positions are kicking butt. In short living the good life like Damocles envisioned. However, the sword is poised to drop if Janet Yellen cuts the horse hair on rates and down the market drops. There is some weird tension on that tenuous horse hair of volatility.
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More Yellen testimony hurt the RUT and VIX today as both those indexes made some pretty good size drops. With a lot of old tech like MSFT and especially INTC, starting to trade at multiples out of the single digits what is volatility to do. A client wrote me today and asked if CSCO is next? All of a sudden establish companies are doing something not many thought possible a year ago and that is deliver some growth.
Unless I am mistaken, the new Fed Chairman lobbed the interest rate bomb over the market yesterday, and the initial reaction was sell, sell, sell. Things settled down today a bit but there were still some scars. Bonds did not really move much, which is due more to the new geopolitical uncertainty around new Czar Putin. No one is in a hurry to leave them. Markets have come full circle from last year when the Fed started hinting exit. Between Federal belt tightening and the Taper, stocks have done nothing but rally. So why can’t the VXX decay?
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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.
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The market is shaking off a few key items:
A new Fed Chairman that gave nice testimony.
Uncertainty around Healthcare.gov or the certainty it is a mess.