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Curly’s Massive Momo Update
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Curly’s Massive Momo Update

by The MoleMarch 31, 2017

It’s the last session of the month and that means you’re getting treated to a massive momo update. It’s been a long standing tradition here at Evil Speculator and I rarely miss an opportunity to step back and look at the big picture. To me personally the process of compiling it helps me gain a deeper understanding of what drives the ongoing market phase and where we may be heading next. However this time things are a bit more tricky as technically speaking we seem to be in uncharted territory (pun intended).

2017-03-31_SKEW_VIX_BB

So let’s dive right in – I’ll start with the easy stuff first to frame the overall picture. Above you see a slightly smoothed ratio between the SKEW and the VIX. You will not that the upper Bollinger band seems to delineate price extremes in the S&P 500 which precede a medium term correction. This is actually quite reliable – it doesn’t always work as sometimes you’ll get MT corrections ahead of time (see the pre 2014 range) but in general it catches the ‘bigguns’.

Except that we now touched it twice in the past few months without much of a price response. To paraphrase Curly from the three Stooges: “I tried to sell but nothing happened!”. Sure equities managed to drop a little during my time in Tenerife but it’s been comparable shallow, especially given the magnitude of the preceding rally, and we already seem to back on track to retest the highs.

2017-03-31_VIX_VXV

VIX versus VXV – it’s quarterly cousin. I plot this ratio to find out if implied ST volatility is out or under pricing implied MT volatility. What can I say – risk perception continues to be pretty low. As a matter of fact we have spent most of the past year in the lower ranges I have highlighted in green. Looking back five years I am unable to identify a comparable range of comparably bullish market sentiment. What also stands out however is what happens as soon as prices dip lower. We see an almost panic laden spike higher which then quickly recoils and we’re back in the lower ranges. So it seems the range of risk perception has been expanding – it’s starting to resemble bipolar behavior. Hold on to that thought we’ll cover this later.

2017-03-31_VIX_ROC

But we’re just getting warmed up. This is the VIX’ rate of change chart which I’m using to identify IV regime changes. The light-blue areas are the long stretches in which it’s hard to get a read. Usually those periods comprise both trending and sideways ranges. The green sections are the ones that mark periods when we see a range expansion in IV followed by a correction toward the lower ranges. I call these periods ‘easy time’ because after a breach below the 50 mark and until a breach of the -50 mark being long can pay off handsomely.

Unfortunately we don’t seem to be getting anywhere near easy time as the current ROC range seems to be gyrating within a very small window. That is bad news for the bears but it may be great news for the bulls. Because until we see risk expansion this bull market is probably just going to keep ripping higher and higher.

Quite a bit more waiting below the fold. If you haven’t joined yet then this is a great time to become a member:

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • http://evilspeculator.com Sir Mole III

    I’m exhausted after this post – need another vacation 😉

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • OJuice

    Take a quick vacation for the rest of the day. I really want to buy some ES/ at 2350 and the only sure way to get a little dump is for you to “go on vacation”.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    22 day update.

    If you were crazy hungry to short the energy Market, I could understand the ..frustration.
    😉

    https://uploads.disquscdn.com/images/df9f5a3411d84b767c753cc55ba6e65cd36f82a4ad4f477f0ac1ced67a1d5890.png

  • ridingwaves

    try driving the 5 thru LA during rush hour….Damn, I’m glad I don’t live there anymore…..
    the golden cross on SI is in place on weekly

  • http://evilspeculator.com Sir Mole III

    Actually I’ve had that honor on many occasions. The 405 is worse though, especially between Westwood and LAX.

  • Mark Shinnick

    405’s grown much worse. West LA is a virtual island in the afternoons with gridlock. Roger that golden cross.

  • ridingwaves

    I used to drive from Irvine to Malibu past pepperdine for work..
    the only caveat is Jane Seymour was in the office next to ours…and the view…

  • OJuice

    If you can get your hands on it, “The Californians” sketch on Saturday Night live is hilarious and relevant.

  • Mark Shinnick

    That is amazing; Heathercliff perhaps? Short miners.

  • http://evilspeculator.com Sir Mole III

    Caveat or bonus?

    Jane Seymour used to be quite a looker when she was young. Held up quite nicely as well post wall.

  • http://evilspeculator.com Sir Mole III

    Yeah, I remember those.

  • http://evilspeculator.com Sir Mole III

    So nobody’s trading I guess? LOL :-)

    I’ve got a splitting headache for some reason. Going to take it easy now…

  • Mark Shinnick

    All flat.

  • ridingwaves

    I will look for it..

  • ridingwaves

    Pierce Brosnan was in office below us…
    Jane was hot when I working there and I admit I loved it when she pulled into the parking lot….Lots of stars running LLC’s from the office building, with personal assistant there more often than the stars, had incredible view of Pacific….

    one of the only office buildings after passing Pepperdine

  • Mulv

    The gyrations in your momo charts suggest that the “carry” vol sellers are dominating the market, i.e, tourists. When vol ticks up, they panic lift to cover. When the end comes, there won’t be a high enough offer for the options that they’ve written. Also, the bus will probably be empty for the first few 100 sp points down.

  • Mark Shinnick

    Bummer, pressure points forearm, and between thumb and index.

  • BobbyLow

    Looks like you hit a couple of NUGT’s in the fast lane today.

    In the mean time, I’m 2 weeks into range bound traffic in this sector. :)

  • Mark Shinnick

    Yes, I’m into these slugfests. What I’d really like to do is short the shit out the miners somewhere within the next couple of %.

  • Mark Shinnick

    Facinating vulnerability, yes the vacuum seems palpable.

  • Ronebadger

    VIX is cranking…compared to a relatively Flat Friday

    http://stockcharts.com/public/1092905/chartbook/428507379;

  • Mark Shinnick

    Yes, hit support on the 29th, now within local resistance.

  • BobbyLow

    Not too shabby of a week and finished up by closing Nat Gas at Breakeven just before the close. I left one open position which is short miners via DUST.

    I spent most of my day re-back testing a couple of things. Talking with RW about the de-listing of certain ETN’s the other day got me thinking and I really like the price action of the 3X’s. NUGT and DUST are 3X ETF’s and they are fine. 3X Nat Gas UGAZ, DGAZ and 3X Silver USLV, DSLV are ETN’s. If I were only day trading these ETN’s there would not be an issue. However, some of my trades can go on for days and if they are really working weeks. Because ETN’s are basically Echange Traded Notes there is a Credit Risk involved and they are not backed by much of anything other than the word of the issuer.

    So I think going forward, I’ll stick with the ETF’s NUGT and DUST for Miners but use the straight 1X UNG ETF for Nat Gas and 1X SLV ETF for Silver. This will tie up 3 Times the amount of Capital as the 3X’s but have basically the same R Risk. In my regular trading account, I’ll short the old fashioned way and in my IRA, I’ll short via KOLD 2X Short Nat Gas ETF and ZSQ 2X Short Silver ETF.

    This is probably overkill on my part but there has been too much shit to hit the fan with some of the big fiduciary banks in recent years.

  • http://evilspeculator.com Sir Mole III

    Well done Bobby!

  • http://evilspeculator.com Sir Mole III

    The higher they fly… trick is timing the roll over which is difficult. Much better odds will be present after the first spike higher once everyone thinks it’s back to business.

    Of course I am talking long term here – there is frankly no telling WHEN this will happen. What you just said could have been presented months ago and would have been equally applicable then.

  • http://evilspeculator.com Sir Mole III

    It was some tension in my neck which fortunately resolved itself.

  • http://evilspeculator.com Sir Mole III

    You know what I’m going to say right?

  • Mulv

    I think the unusual behaviors that you noted in today’s post suggest that we’re approaching the end. Of course, it’s totally plausible that we spend the next several months in this regime and the short vol sellers find even more new and exciting ways to ply their craft. We could also have a high vol blowoff top that pushes all the short gamma guys (thoroughly beaten market-makers) out of their positions and drop from there with no one aboard. I think that there’s some merit to buying insurance when it’s steeply discounted.

  • ZigZag

    Thanks for the momo update – just reading it now now that the tickers are finally quiet.

  • Scott Phillips

    When the market is behaving like a pain in the ass… usually a sign that it is trying to transition into a trading range for a while

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Pierce Brosnan. Awesome. One of my favorite 007’s

  • http://evilspeculator.com Sir Mole III