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Let’s Talk Volatility
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Let’s Talk Volatility

by The MoleJune 15, 2016

There is something markedly different about the current sell off and I have spent the last few hours assembling pieces of the puzzle into what I hope will be a useful perspective on where we are heading. As you know the analysis of volatility patterns has become somewhat of a hobby of mine and the more I delve into this aspect of price behavior the more fascinating it becomes.

2016-06-15_spoos_ST_vol

Let’s start with the easy stuff and then work our way up. Here’s the 60-min view on the E-Mini which clearly shows us an expanding volatility profile over the past week. Things started to quietly turn lower near 2100 and then picked up more steam. No surprise there.

2016-06-15_spoos_LT_vol

Now here is where it gets interesting. This is a similar view but this time we’re looking at realized volatility on the daily panel. The blue arrows point at candles around which equities basically ran out of steam and transitioned into a corrective period. That is not always a precursor to a medium term retracement but it usually is if it happens near all time highs.

2016-06-15_VXV_VIX

And here is where this story gets even more interesting. As you can see over the past year or so the VXV:VIX ratio has been observing a resistance line that was slowly descending between 1.24 and 1.2 as of right now. So when we pushed toward 1.25 it was clear that we were near the end of the advance. However after having experienced eight years plastered with bear traps I was wise enough to not immediately suggest that a high was in place. Instead what I was looking for was a pronounced divergence followed by price confirmation. Which pretty much brings us to the situation right now.

2016-06-15_VXV

Before we move on let’s look at the VXV and the VIX as separate plots. About Two months ago I pointed out a steepening on the (blue) VXV in comparison with the more short term (orange) VIX. Even during the recent highs the VIX held that line which means that on a more long term basis, i.e. around a 90 day window, risk sellers continued to price LT risk above short term risk. Based on what I am seeing here that has not happened during this entire bull market.

However I did mention in my intro that there’s something markedly different about this sell off and I think you are very much going to enjoy the next chart. Please grab your secret decoder ring and meet me in the lair:

evil_separator

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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

    If you are still having issues connecting to the Zero please try the following:

    1) Open an anonymous tab/window in Chrome or Opera.
    2) Use your credentials to log into aMember.
    3) If you STILL get refused please email me your login and your password so that I can pass it on to aMember support.

    To people with access: If some folks are having issues today feel free to post Zero charts into the comment section so that they’re not left hanging. Thanks in advance.

  • Ladywandering

    You may get your wish, great post!

  • ZigZag

    I only use Safari with my Mac. It seems to win all the benchmarks, and I never have trouble with it. My son’s 5 year old base model macbook was basically inoperable until I simply removed Chrome – now it’s a great backup computer. I hope no problems come up with Safari and the Zero.

  • Mark Shinnick

    Bot some tvix 3.07.

  • Time Bandit

    I’ve read on a few occasions where the API Oil Report that comes out on late Tuesday afternoon is unreliable. I now believe that this report is even more worthless than the EIA Report that comes out on Weds Mornings. Case in Point API – a 1 M Barrel Build and a build in Gasoline. EIA Report – just under a 1 M Barrel drawdown and a drawdown in Gasoline.

    As far as I’m concerned you can scheisse on one of these reports and cover it up with the other.

  • Yoda

    I’ll file that the API and EIA reports in the same trash bin as “news”. I am more interested in the technical picture, which incidentally doesn’t look too bullish to my lenses now. On the daily, I think a retest of 49 is possible, at which point I would short it. I would reverse the trade to long if 49.5 is breached.

  • Yoda

    Lol, right on cue after Europe’s close

  • Anthony Morrow

    what are you thinking here rest of the day / week ES?

  • Mark Shinnick

    Looks like 2.8 zone is possible if 3.1 support fails.

  • Yoda

    I entered a NDX short trade yesterday. It is a bit underwater now, but my stop is still quite a bit away. So my thinking for the rest of the week is where my money is right now.

  • Anthony Morrow

    i hope it works out for you. i am long otm puts and calls so just want some vol but will see

  • Yoda

    Thanks. I don’t do options as they move way too fast to my trading taste.

  • Ronebadger

    VIX inside BBs…look at BB Width!

  • Anthony Morrow

    roger to each their own whatever gets the job done. whats your stop level on ndx if you dont mind me asking my ES upside targets are 91 and 2103, downside are 54 and 27 (all june)

  • Anthony Morrow

    hopefully this is the backtest to 20 and it sees 60+ next

  • Yoda

    The trade that I am in now is SQQQ. I entered the trade at 18.78 and set the stop at 18.20. I however do not like to discuss stops while the trade is on.

  • CandleStickEmUpper

    Currently short NQ 4420

  • Anthony Morrow

    roger well i hope it works for both of us

  • Ronebadger

    I did a similar trade on SQQQ yesterday as well…looking to add on a rip

  • Mark Shinnick

    Closed out the 3.07’s at around 3.21 so flat now. See what happens..

  • http://evilspeculator.com Sir Mole III

    That would be awesome :-)

  • http://evilspeculator.com Sir Mole III

    Zero snapshot:

    .

  • http://evilspeculator.com Sir Mole III

    Even if we wind up there I don’t think it’ll be all in one leg. We already saw it dropping yesterday and one more day of tepid buying would be sweet 😉

  • http://evilspeculator.com Sir Mole III

    Slow here today – how many people did you guys ban!!?? 😉

  • Yoda

    Awaiting Granny Yellen to do nothing.

  • Ronebadger

    yeah, “tepid buying”

  • Time Bandit

    Aren’t Fed Days fun?

  • Anthony Morrow

    man what a market neither longs nor shorts making anything brutal

  • http://evilspeculator.com Sir Mole III

    Well, I tried to make it educational at least.

  • Yoda

    Educational and spot on. Glad the tape choose the more evil side.

  • Time Bandit

    Yep. This game can be even more brutal than “normal” on Fed Days. I guess one might call it the “nature of the beast”. :)

  • Anthony Morrow

    will see what happens overnight and early tomorrow am might be some action but im def in profit taking mode shld there be any!

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

    Wow, tight range today.

    ‘ole GG has been informed of (surprise!) an Abscess upper molar that needs taking care of.
    reading from the stories, it’s a piece of cake, or *absolute* Hell.
    There’s a chance of painkillers, so all trades off, all comments off, just occasional lurking until further notice.
    -GG Out

  • mugabe

    testing

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

    I have a band around $18, if it acts as *continued support* – your dream may come true.

    http://stockcharts.com/h-sc/ui?s=%24VIX&p=D&yr=0&mn=6&dy=0&id=p69407761184

  • Time Bandit

    The ultimate fake out at the end. What a game. :)

  • Ladywandering

    I just went through something similar. Good luck and mine was really closer to a piece of cake

  • Yoda

    I suggest you line up a couple of shots before going in just in case the local anaesthesia doesn’t kick in time.
    http://images.mentalfloss.com/sites/default/files/styles/article_640x430/public/istock_000036363252_small.jpg

  • Mark Shinnick

    If anything might help for the time being its soakings with hydrogen peroxide. It can significantly handle the pain sourcepoint until such time as you can get work done.

  • Time Bandit

    I put in a MOC order to cover my XLB Short two times and canceled the order two times. That’s how much this thing is tettering by my lens. It can go either way now but I’m staying short for now. Also still Short Financials via SKF. I flipped to short crude while already being short Integrated Oilers via ERY and just barely long Oil Service OIH.

    This Fed Day wasn’t a barn burner by any means but it was still sneaky.

  • Time Bandit

    Need to take care of the infection with antibiotics before fixing the underlying problem. It’s still early enough where you are to get a prescription. Good luck.

  • Mark Shinnick

    Bot tvix again around 3.1…wish it could have kept dropping…but so goes the game.

  • Ronebadger

    My experience is to pull it or root canal….done both (different teeth, duh…) Don’t wait.

  • Yoda

    bodes well for the rest of OPEX week 😉

  • http://evilspeculator.com Sir Mole III

    A little bit too early for my taste. I wanted to see a retest of 2080.

  • http://evilspeculator.com Sir Mole III

    Your point?

  • http://evilspeculator.com Sir Mole III

    Thank you – I would agree with your sentiment on Chrome. It started out so well but over the years it has turned into a slow resource hog.

  • Ronebadger

    agreed, that tepid buying would sweet, as you said

  • bluprint

    I was gonna suggest a bowl of herb. Fact – Weed increases the effectiveness of opiod painkillers without any increase of OD. So, you can take less pills, lower your risk of addiction and OD, and decrease liver damage by taking some of God’s herb first.

  • Yoda

    2079.5 isn’t good enough?

  • Yoda

    Learned something new today. Thanks

  • CandleStickEmUpper

    Covered the NQ short at 4401 earlier. (Shorted at 4420 as posted earlier).

  • Yoda

    DX seems to be at an important technical juncture.
    http://stockcharts.com/h-sc/ui?s=%24USD&p=D&b=6&g=0&id=p09898170281
    Curious to see which direction it’ll be headed to in the near term, and its resulting impact on commodities and PMs.

  • mugabe

    Yen’s gone ballistic.

  • http://evilspeculator.com Sir Mole III

    EUR dropping hard.

  • ridingwaves

    got gold, SI target 28, gold 1490+ target

  • Tomcat

    I can’t believe I missed the gold bus yesterday entry by $1.

  • ridingwaves

    plenty of room to move, opex is 27th, could bring some retrace, though brexit would most likely lead to $50+ moves..

  • http://evilspeculator.com Sir Mole III

    Happens to all of us – don’t beat yourself up.

  • Nate

    Better to be selective and miss a few opportunities than to pile up losses on bad entries!

  • Anthony Morrow

    just covered a little es was looking for ~50 june so close enough for me, next level to the downside i see is ~25, ~90 on the upside

  • ridingwaves

    2045 SPX looks like nice bounce area, congrats on trade…

  • Billabong

    My daily BB is already showing GC dodging on and outside the upper BB … buyers in panic buy mode … time to let the dust settle. I followed my RBT and got out of miners on Tue. I could lament about the move (often called regret bias), but I did what I was required to do knowing another opportunity will present itself in the same space in a few days if not weeks.

  • Anthony Morrow

    hopefully is where some longs get sucked in to fuel the next leg lower but who knows. i am still down on the week but have a lot of torque if it really breaks down so thats what im playing for at this point

  • Yoda

    Today’s weather forecast: thunderstorms with a high probability of falling machetes.

  • http://evilspeculator.com Sir Mole III

    Getting pretty ugly there in equities. What is strange is the low Zero signal – it’s possible that this is the final leg down before a bounce. But I would wait for a spike low at minimum.

  • Time Bandit

    As long as you followed your rules then you traded correctly. We all can lament coulda, woulda, shoulda, all the time. But this is what causes self doubt, confusion and mistakes by trading on emotion. At least it does for me.

  • ridingwaves

    I thought you were on Dagobah master…

  • Anthony Morrow

    vol curve for next week still indicates more downside to me (5 bucks for the 2100 calls / puts almost prohibitively expensive) but might just speak to impending realized crush which has been the trend for the most part

  • Billabong

    Today is a good example of where folks could really get emotionally excited on missing out only to find a little patience paid big dividends … let me go, I have shorts to put on (LOL).

  • ridingwaves

    definitely…lots of miners already faded…

  • Time Bandit

    Don’t want to say much because the market can be a cruel bitch but so far so good today. :)

  • Mark Shinnick

    Thanks….every bit helps :)

  • Ronebadger

    TICK is hardly positive. When you say “low Zero signal”, you mean small (degree) right? Not low on the chart

  • Yoda

    No internet of Dagobah :( , and my broker refuses to accept telepathic thoughts for placing trades. So if I want to bank coins on the market travel to Earth on a daily basis I am condemned to. However since the invention of hyperspace, commuting is such a breeze. 😉

  • Ronebadger

    VIX well into the 20s … still a good place to hold short positions
    http://stockcharts.com/public/1092905/chartbook/428507379;

  • Anthony Morrow

    sorry, why is that?

  • ridingwaves

    welcome to the dark side or earth as us sheeple call it

  • Mark Shinnick

    It seems like a real art to correlate Vix levels with intraday hold decisions…never looked into it myself. I exit/re-enter tvix/uvxy based on those instruments’ respective behavior,

  • Yoda

    I read some time ago that Institutionals consider the monthly 20 sma as a gauge to determine whether the tape is in a bull or bear market. On SPX, the monthly 20 sma is currently at 2044.8. If we breach it, I would expect the zero signal to strengthen.
    An also important price level is last month’s low at SPX 2025.91, which incidentally was a bullish hammer candle. A breach of that low this month would create a very bearish engulfing red candle.
    In a bearish scenario, I have a target of around ES 1975, which is the next significant volume hole.
    FYI PnF shows currently a bearish target of SPX 2010

  • kangaroo

    Hey guys, been lurking for a while and Sir Mole you have a great blog.
    Been working on building my first trading systems this year as I am trying to recruit for some quant shops, lots of valuable posts here.
    I have been backtesting some hourly data on different futures contracts. Where would you recommend to get realtime data going back 15 or 20 years? Bloomberg only goes back 3 months and lots of public sites offer limited variety of futures.

  • Ronebadger

    Volatility breeds pessimism and…volatility

  • Anthony Morrow

    hmm roger makes sense. i am buying otm calls for next week right now as a hedge

  • Time Bandit

    You might have a problem there. Futures do not have a continuous contract so your data is not going to be totally accurate because of contract rolls. I can go back 15 or 20 years for indices using a daily chart on my platform but only 180 Trading days using an hourly chart.

  • Yoda

    Yup. Thin liquidity threatens margin calls. In a panic, everything is at risk of being sold off, except safe haven and short risk trades.

  • Yoda

    The only (and major) headwind that I have found for the bearish side is that Dennis Fartman is now net short.

  • http://pugsma.wordpress.com/denalis-turning-points/ denali92

    Lower daily bollo on the ESU6 is 2032 – as has been seen in more than a few of these unexpected opex moves – see Dec 15 and Aug 15 as recent examples – the bottom can be quite a bit below the lower bollo as selling becomes irrational for a few hours…. then we get vicious bounces

    in December, the low was 26pts below the lower bollo and then the RAMP was 85pts in 2 days…. obviously August was even crazier…

    Always good to be aware of the possibilities before entering one’s trades.

    -D

  • Anthony Morrow

    i think strong housing globally is the bull case fundamentally basically the more unaffordable it becomes the better the economy does if you think about it.

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

    Good morning rats.

    If you made a boat load of coin in Treasury Bonds, now would be the optimum time for a reversal into equities. Blue arrows (good reverses), Red arrows (Never say never).

    myself? oh, no thanks, I prefer not to lay down in a bed of cold steel rail.
    😉

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

    As long as people can afford buying at increasingly high prices. When flippers stop flipping the housing market will be in trouble. It is already happening in highly speculative luxury markets like Miami, London and Honk Kong.

  • Yoda

    I am glad I didn’t chase gold this morning.

  • Anthony Morrow

    higher prices = higher supply = higher consumer spending, jobs, tax receipts, etc. even more so in such a low rate environment. but what do i know

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

    In London, higher prices created an excess supply, which is not soaked by demand. Developers are now obliged to discount. Flippers that bought at the high either hope for higher prices or wish to sell asap in order to avoid being underwater. This creates even more supply pushing prices downwards, which also impacts lenders’ balance sheets. At some point in time prices will reach equilibrium between supply and demand. I believe right now we are repeating the housing crisis of 2007 with the main difference being that every speculator is much more nervous and ready to cut losses quicker.

  • Time Bandit

    GBP/JPY has led equities ever since 9:30. Amazing just how in sync this pair can get.

  • kudra

    grrrr. looks like i missed my QID exit at 31. QQQ hit 106.50 and cleanly bounced.

  • Mark Shinnick

    That’s neither been the model in recent America…or China.

  • Tomcat

    I also don’t like chasing things that are faster than me

  • ridingwaves

    The housing market has been propped by the fed, nothing more or nothing less…

    remember FASB 157-158 were shelved in great depression 2…mark to market became extinct

  • Mark Shinnick

    Reentered tvix just below this level, tight stop.

  • kudra

    gdx got burned today. hit 27; now 25.60’s. fakeout breakout.

  • Time Bandit

    I have to ask the question Kudra. Since your last issues, have you developed a system for your entries and exits?

  • http://evilspeculator.com Sir Mole III

    How’s my crew?

  • kudra

    no system other than looking at support and resistance bands. sticking to quick scalps with vehicles like dust and tza; out by EOD win lose or draw. much smaller positions, taking fewer trades, and observing myself through the process. pecking away at my yr to date losses. big $ tied up in QID, a vestige of recklessness.

  • Tomcat

    Mole, I got to give you a lot of credit. I was foolishly expecting a post today, with a start of a long on gold campaign. I am glad that you proved me wrong, because had you posted, I would have followed through.

  • Mark Shinnick

    Good times. Thx for the help.

  • Time Bandit

    Well that’s a good start. Just realize who your biggest enemy is. I know now that my biggest enemy was me. :)

  • mugabe

    Have you put in place a monthly stop? ie if down more than X% of the account, stop trading for the rest of the month?

  • ridingwaves

    London and NY fix are losing grip on gold-silver market…a bear raid is to be expected time and time again..

    gold is heading East and they like the real stuff….the amount of actual deliveries this month is telling…

  • mugabe

    yeah – you were my biggest enemy, too.

  • Time Bandit

    Having a pretty good day with my swings although it was better this AM. Also got in a couple of successful scalps in Forex today so not bad at all. :)

  • Time Bandit

    Ha ha. :)

  • mugabe

    fine until gold tanked and euro rallied :)

  • kudra

    yes. essential.

  • Tomcat

    and what conclusion if any are you drawing in investment terms? long/short

  • ridingwaves

    my only gripe with TB is the crab he doesn’t share…..

  • Time Bandit

    After pulling Pots for 26 straight hours in gale force winds and sub-zero temperatures, I ain’t sharing nuttin. :)

  • Mark Shinnick

    Stopped no loss.

  • ridingwaves

    slacker….Hope your trades are treating you well TB

  • Time Bandit

    Damn my last scalp was on the long side of the GBP/JPY and I thought I did good. Then it climbed more than another 100 Pips. Not second guessing myself – just sayin.

  • ridingwaves

    very long…

  • BKXtoZERO

    got myself out of a pickle, sidestepped, grabbed more and got out of the pickle again. 100% cashola for the Ayatollah of Dumb-ola

  • http://evilspeculator.com Sir Mole III

    I think the algos are having a wee bit too much fun today. Check out this one:

    http://www.fxstreet.com/news/sharp-reversal-drags-eur-usd-close-to-1-1200-level-201606161048

    A ‘change in sentiment’ – the lingo used when nobody has a fucking clue as to why this happened. It simply was a stop run – very nicely executed I must say.

  • mugabe

    algo está pasando

  • BKXtoZERO

    I was doing well like that then I got lazy and the pressure got to me. Good for you.

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

    nice pop in XLB:)

  • Time Bandit

    Scalping Forex has been good. Swings have been somewhat waxing and waning over the past few days. But I’m still grateful to be trading sectors instead of entire indices.

  • Time Bandit

    Yep. I cut my short in half at $46.80 but today’s move is still not enough to get me back long again – Yet.

  • http://evilspeculator.com Sir Mole III

    siempre – pero la sesión hoy es un bicho raro.

  • Time Bandit

    The selling of Crude picked up just before the close of Open Outcry. Boom!

  • Mark Shinnick

    Yeah..that gold pop should be telling us something relating to equities in general.

  • Mark Shinnick

    Yeah, long ERY since yesterday…so iffy.

  • Ronebadger

    sitting on my shorts…in my account and on my chair

  • Mark Shinnick

    Bot 3.28 …tight stop…see what happens.

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

    VIX hourly needs to close gap. IMHO.

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

  • Mark Shinnick

    Yes, could be…always so tenuous.

  • Mark Shinnick

    I’d bet that sooo many participants went long gold….each needs a good hair cut to test their mettle.

  • Yoda

    I intend to close all positions on the 23rd.

  • ridingwaves

    the big players are in the sector now and it’s there job to beat up the weak hands..

  • almez

    I’m watching the VIX close. Below 20 close would make me flip long (although SPY hammer looks bullish too)

  • Yoda

    IDK about that. Commercials short positions are rather high to my taste:
    http://www.finviz.com/futures_charts.ashx?t=GC&p=d1

  • Yoda

    We got a Mole signal (blue arrow). Now would be the time to reload shorts.

  • Nate

    Amazing takedown of precious metals today! I was lucky enough to be long USLV around when Mole started pumping gold a couple of weeks ago (thanks for that!) and got stopped out in the carnage today. Happy with the profits but wow never saw that coming!

  • Mark Shinnick

    Bot txix near 3.0 support…see what happens.

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

    ever think that the Market could preposition on the previous day?

  • Yoda

    Let me correct that: I will have no open positions by the 23rd at the latest.

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

    did I say toppy? I think I did, yeah.
    😉

    https://www.youtube.com/watch?v=pk-W_i7Z59I

  • http://evilspeculator.com Sir Mole III

    Big movements across the board today – on the Euro front as well. Volatility is on the rise folks – and I don’t think we have seen the last of it.

  • http://evilspeculator.com Sir Mole III

    BREXIT yes.

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

    special note, double check the Zero that day.
    he he.
    no server outages or TOS updates.
    :-)

  • Billabong

    This happens every month :-)

  • Yoda

    With quadruple witching tomorrow, one better get a good night of sleep tonight.

  • http://www.ProfitFromPatterns.com/ Ivan K

    K’roo – I have been using CSI data since the 1980’s … their data base is extensive and excellent … includes the entire history of each individual futures contract … as opposed to merely some sort of continuous data.

  • Yoda

    A shepherd’s pie and a Guinness will be duly sacrificed to the Market’s Gods on the eve of the vote with the hope that the British sheep will wise up in choosing freedom over slavery.

  • Yoda

    Murphy’s Law will ensure that you won’t get any fill for your orders, unless you know the secret handshake. 😉

  • http://evilspeculator.com Sir Mole III

    I’ll be here – no worries.

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

    you could go on a trip.
    😉
    The rats would pitch in, I’m sure of it.

  • Billabong

    That was quite the reversal in DX and and the major indexes between 11:15 and 11:45 EST. I was on the road and checked the 5 min late afternoon – boom! Something to do with the Europe close? With GC / SI reversing, my PM closed fund positions hit those trailing stops and were cut loose … totally out of all PM positions.

  • Billabong

    Y2K again? The world’s getting ready to collapse … do the opposite, it will already be priced in by the 23rd, if so inclined.

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

    Thanks Ivan, I was also looking for a reliable data provider

  • http://greenlander1.blogspot.com/ Greenlander

    Yah the yields potentially bottoming out was the signal for me to close shorts today and start building longs

  • http://evilspeculator.com Sir Mole III