I noticed something on the VIX this morning which inspired me to dig a bit deeper. It started with the realization that the VIX has experienced a marked increase in realized volatility (yes RV in IV) over the course of this year, whilst at the same time managing to drop to new all time lows of 8.84. Wall of worry indeed, especially given that the E-Mini is already pushing into new virgin territory as I am typing this.
With all the chaos that’s unfolding in the U.S. right now (La Tuna blaze in L.A. and a second massive hurricane now threatening the South East) I felt a bit guilty for grumbling about a comparatively inane topic like the falling Dollar. But thankfully my momentary bout of decorum quickly passed and I’m back to my old self again. So let’s do this!
Over the past few sessions a situation has arisen which effectively puts us at the edge of the abyss on two separate but related fronts: U.S. equities and the Dollar. While the mainstream media is once again entangled in a furious clickbait initiative courtesy of our favorite East Asian bad-boy Kim Jong Un, I’m more concerned about what I’m seeing on my comparatively boring technical charts. Not to milk every doomsday metaphor I can think of but the storm that’s brewing here could have serious medium to long term consequences. So let’s observe the potential damage as well as consider opportunities for leveraging the situation:
I don’t expect much movement over the next two days as traders are now shifting into a holding pattern in anticipation of the Jackson Hole meeting this coming Friday. Both Janet Yellen and Mario Draghi are scheduled to deliver speeches that day, which could potentially roil markets on both sides of the Atlantic. Of course beyond a momentary excuse for spiking volatility nobody really cares about what Yellen has to say anymore at this point, as she’s basically turned into the central banker equivalent of your problem tenant repeatedly promising to drop by that overdue rent check but never actually doing it.