The Day Risk Died
I’m getting pretty giddy down in my Mediterranean winter lair and you probably know why. The last time the VIX was venturing below its 13 mark was in June of 2007, after which it never looked back, until today! We’ve been through some rather turbulent times since and despite the fact that none of the root causes of the soon ensuing market crash got fixed (quite on the contrary) volatility suffered a sudden coronary today and was unceremoniously buried below the NYSE. Farewell – unlike this silly planking fad you shall be missed…
Okay, let’s get serious – I have no idea what caused that sudden drop to the 12.45 mark today but I like it. Because cheap vega means cheap premiums and those may become mighty useful, no matter which way the tape swings next week. Now if we only had a sign on the price front – something to give us an opportunity to get positioned…
Well here you go, champ – how about a bonafide inside day on the E-Mini? Yes, I know it’s a three day weekend but that doesn’t mean you can’t get positioned as early as Monday night. Now let’s see what this means from a volatility perspective. IF we continue higher and you are getting calls then the punishment you would incur from lower volatility should be relatively contained. After all, another 25% drop from here would get us to a VIX of 9 – quite a different beast then dropping 50% from 23.23 in a matter of 14 trading days (with 70% of that drop in three days).
If we trigger a short on Monday night or on Tuesday and we continue lower then vega should start working in our favor. Even if you are long calls and volatility goes up your premiums should increase, assuming of course price remains level. I hope this is clear – if not I suggest you post pertinent questions in the comment section. We enjoy the company of several resident senior steel rats who are happy to point you in the right direction.
A word to the wise – despite the low VIX reading I implore you to remain open minded and not jump to any conclusions. Case in point – the SPX/VIX ratio which actually is running sky high right now. Yesterday it was dropping ahead of today’s little early morning correction, so what this may mean is that we’ll see continuation higher. If we get a long trigger next week then that’s what we’ll take – always remember, price is our final denominator. Our charts are only clues that help us the possibilities of what price may do next.
Someone asked me ‘so, how about the NZD/USD, Mole?’ Well, unfortunately I missed that fast drop earlier and was kicking myself. However, turns out we are sitting on quite a juicy setup here. Look at the 25-day SMA touch – very nice, plus there’s a daily NLSL and we’re still above (as I’m writing this). Now, we are below the triangle but there’s now an inside day which may complete intact today. And the triggers are below the NLSL and above the triangle, which would either mean continuation lower or a fake breach which probably would be followed up by a push higher. I definitely like this one and so should you.
More charting goodness below – please step into my lair:
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I won’t be posting any stock symbols today as they’ll be though to manage over the long weekend. Unless you are already in an ongoing position I suggest you stick with stuff you can keep your eye on starting Monday night.
Bonds – the 10-year snapped back hard today and we are back from whence we came – that diagonal resistance line. Now aren’t you glad I told you to take profits yesterday? You… did… take.. profits, didn’t ya? 😉
I think it’s fair for a double dip here. Short again with a stop above. But be prepared for a breach – always. I have no directional bias, to be clear. The only reason we are taking on positions here is because it’s a proven inflection point.
Coffee at its 100-day SMA – if you were long then take profits. Maybe time to think about a short here – a good first sign would be a breach of the 25-hour. If we continue to ride this thing higher and breach above the 100-day then I suggest you jump back into longs.
Copper – great NLBL touch – you know what to do. Again, watch the 25-hour which will either act as support or your signal to get short (unless she moves away from that NLBL by Monday/Tuesday).
Inside day on gold – you know what to do. I really like this one as the prior candle may herald further weakness.
Crude – it’s a beauty – I would take this one either way.
USD/JPY – I’m actually watching the ST panel here and can’t help but wanting to either ride the 25-hour higher or participate in a little correction if we see a breach.
USD/CHF – I have highlighted all the context and I’m sure you get my drift. I think the simplest plan as so often is to follow the short term panel, in particular the 100-hour. It should lead the way to either a reversal or an acceleration higher. Ambivalent shake out periods are there for a reason – they shake off the weak hands. For us they are inflection points to get positioned.
Cable approaching daily support. Don’t be a hero! Wait for a sign of life here.
CAD/JPY – inside day 🙂
AUD/USD – touch of the 25-day and we just skirted a daily NLSL. We are already below the 25-hour and I’m curious what’s going to happen next. If we drop lower then we would get ourselves an official short signal on the daily. With the 25-hour (and 100-hour) dropping from above it should give us a good way to manage any short positions. A bounce on the other hand would have to overcome both SMAs and thus again give us a chance to jump on board. I like it.
That’s all for today – I hope you all enjoy the long weekend. Remember, Monday is MLK Day and it’s when I’ll be back with some long term perspectives.