Things used to be a lot easier. The US Equity market was single-handedly the best forward-looking indicator to gauge the overall climate of the world's economy. But now with, let's just say, a helping hand from our Central Banks, it is more and more difficult to get a handle on what is going on. So, we have to do what we always to and adapt. Where do we turn? For me I turn to the VIX complex. It is widely traded and doesn't have the overt hand of the Fed skewing its value. Specifically, I look at two "fear indexes", the VIX and the VXV. From the CBOE website:
"The CBOE 3-Month Volatility Index (VXVSM) is designed to be a constant measure of 3-month implied volatility of the S&P 500® (SPX) Index options. The VXV Index has tended to be less volatile than the CBOE Volatility Index® (VIX®), which measures one-month implied volatility."
I tend to look at two major things, the absolute value of the VIX and the time structure. I watch how VXV and VIX are valued relative to each other. Taking a look at these I notice two things. First, is that the VIX is at 5-month lows and the ratio between VXV and VIX suggests that we may have experienced at least a short-term top in the S&P.
These two charts is enough to give me pause:
and…
Historically, the market has struggled to hold its gains when this ratio closes above 1.2.
Let's just say now may not be the time to initiate any fresh longs.
Trade well and follow the trend, not the perma-bull OR perma-bear "experts."
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
The markets finished off the week with decent gains for the session. On a week where the markets continually rallied, it looks as if we are making a push for new highs yet again. Can this momentum carry over the weekend? I suspect we drop a bit over the next day or two to start off the week....
Often times on various trading platforms, there is a feature that many of our students tend to follow almost religiously. Depending on the platform, this is called the "mid-price" or "working". This is simply an indicator to give you an idea what that particular platform is calculating the theoretical value as......
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