Now Reading
Volatility Update
17

Volatility Update

by The MoleSeptember 8, 2011

As I commented on the Zero chart this morning: It’s typical for a bullish trend day to be followed by a sideways no-signal day. I cautioned my subs to be nimble and to take small trades. Good advice it turns out as this session deserves the roller-coaster of the week award!

As everyone seems to be still on vacation plus no new tasty setups are on the horizon, so let’s do a quick volatility update:
[amprotect=nonmember]
Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect]
[amprotect=1,13,9,12,5]

Here’s the SKEW against the VIX and not surprisingly it’s still pointing up.

And here’s the entire list on TOS (it’s missing some of the SKEW although I offered them mine) – all of which are incidentally looking upward as well. If you are new here I strongly recommend you read my recent Volatility For Dummies tutorial which should make things perfectly clear. Here’s a quick cheat sheet derived from that post:

VIX-VXO: Front month strikes IV average minus front month ATM strikes IV average. Value: Rather useful on a medium term basis as well as long term basis. Medium term we should be tracking BB breaches and long term divergences.

VXV-VIX: Quarter strikes IV average minus front month ATM strikes IV average. Value: Both medium and long term value. Again BB spikes can be profitable in correlation with other sentiment indicators. On the TOS chart it also seems as if the zero mark is important from a trend perspective.

SKEW-VIX: Front month OTM put/call IV delta minus all front month strikes IV average. Value: The SKEW is best used on a long term basis – medium term it’s a bit mixed and short term relatively meaningless (so, don’t ask me to update it every week – ahem..). The 100 mark on the TOS chart as well as the 95 mark on my long term 10-day SMA chart appear to be meaningful in respect to the ongoing trend. Perhaps you disagree and if you do please feel free to share your charts.

VXV-VXO: Quarter strikes IV average minus front month ATM strikes IV average. Value: Apparently very similar to VIX-VXO.

Let me throw the daily Zero into the mix which I just reconfigured a little bit. What irks me is that DTN does most definitely offer higher quality data – however it seems that the daily Zero on TOS called the tape rather well:

Usually TOS tick data is a lot more smoothed than what I get from DTN – I did a lot of testing on that end. For example in order to resemble a 144 tick chart on TOS I need to use at least a 512 tick chart over on NinjaTrader (using DTN). So given that I thought that smoothing the already smoothed DZ panel a bit more may get those two charts a bit more into alignment. Well, it’s far from a perfect match but if we truly continue upward then either of those would be fine to follow. Which of course is the ten million Dollar question right now…

Bottom Line: Despite all the recent doom and gloom market makers appear to not be pricing in any significant medium to long term downside in equities. Maybe they are wrong – sometimes they are – but let’s continue to consult our charts for guidance instead of ZeroEdge perma-bearish end of the world calls or MSM headlines.

Cheers,

Mole

Cheers,

Mole
[/amprotect]


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.
  • Anonymous

    Not on vaca, just slow today, until just a little while ago

  • Anonymous

    Good pic Mole. I think I’m going to have that as my trading platform startup splash screen.. just as a reminder.

    VIX > 30 is yee-ha!

  • http://evilspeculator.com molecool

    BTW, if you guys are bored and haven’t already done so please head over to investimonials and put in a good word or two: http://bit.ly/pWWLUP.

  • http://thefxspeculator.blogspot.com Onorio

    In the good ole days EURJPY should have been down +300 pips and EURCHF +200 but thanks to the central banks EURJPY is down arr ound 150 and EURCHF is UP (?) near 100….

  • Anonymous

    So I guess it’s safe to say that while current volatility is so high it’s not safe to carry any Swing Trade for very long unless one is into pain.  🙂

    On the last thread there was some posts on what Obama might say or what Bernanke said and I suppose on how their words might affect the market.  Of course the Politicians and Wall Street Pundits Blotivate because that’s what they do.  

    But as previously stated, what it all boils down to is whether or not we rally up to and exceed 1230.71 on the SPX.  If we do, it’s probably onward and upward as the market continues to rally on Pixie Dust.

    OTOH, if we flounder, perhaps we go down in flames.  There is also a chance and I mean only a chance that for as much as we say Fundamentals don’t matter, what this really means is that Fundamentals don’t matter until they do.     

    As for what Bernanke and Obama are saying: What can they say?  More “Shovel Ready Projects?  This train has already left.  More QE?  Yes, let’s continue to help the Central Banks and force the price of food and fuel even higher for the masses?  After all, look at how many jobs the last QE’s have created.

    And what might be the result of Obama’s speech tonight?   Let’s “pretend” that Obama has some good ideas. (eh hem) Which scenario has the biggest probability of playing out?  

    A.) Congress which is led by the opposition and controls spending allows a plan that has a chance of working of which Obama can take credit for as we get closer to election time.

    Or

    B.) It doesn’t matter what Obama proposes because his plans would go up in smoke and die in Congress because it’s better for the Congressional Leadership to have a “Scorched Earth” Policy and make sure that Obama is a One Term President. 

    Personally, I think it’s easier and a lot less frustrating to just watch the numbers blink on my screen and wait to see if we make it to 1230.71.

  • Anonymous

    So I guess it’s safe to say that while current volatility is so high it’s not safe to carry any Swing Trade for very long unless one is into pain.  🙂

    On the last thread there was some posts on what Obama might say or what Bernanke said and I suppose on how their words might affect the market.  Of course the Politicians and Wall Street Pundits Blotivate because that’s what they do.  

    But as previously stated, what it all boils down to is whether or not we rally up to and exceed 1230.71 on the SPX.  If we do, it’s probably onward and upward as the market continues to rally on Pixie Dust.

    OTOH, if we flounder, perhaps we go down in flames.  There is also a chance and I mean only a chance that for as much as we say Fundamentals don’t matter, what this really means is that Fundamentals don’t matter until they do.     

    As for what Bernanke and Obama are saying: What can they say?  More “Shovel Ready Projects?  This train has already left.  More QE?  Yes, let’s continue to help the Central Banks and force the price of food and fuel even higher for the masses?  After all, look at how many jobs the last QE’s have created.

    And what might be the result of Obama’s speech tonight?   Let’s “pretend” that Obama has some good ideas. (eh hem) Which scenario has the biggest probability of playing out?  

    A.) Congress which is led by the opposition and controls spending allows a plan that has a chance of working of which Obama can take credit for as we get closer to election time.

    Or

    B.) It doesn’t matter what Obama proposes because his plans would go up in smoke and die in Congress because it’s better for the Congressional Leadership to have a “Scorched Earth” Policy and make sure that Obama is a One Term President. 

    Personally, I think it’s easier and a lot less frustrating to just watch the numbers blink on my screen and wait to see if we make it to 1230.71.

  • Anonymous

    Reminder:  Green Line on hourly ZL

  • Anonymous

    I have this feeling that they are painting the tape and will close it above 1186

  • http://thefxspeculator.blogspot.com Onorio

    Looking to the 4h chart a break bellow 1140 coul trigger a H&S with a target of aprox. 1040

  • Anonymous

    Today is a vote of no confidence on Berneke and Obama. At least Berneke has spoken.

    The headlines screaming government supports, jobs, stimulus, viagra, etc from you know who. But, the market, as you can see, is just not stimulated. 

  • tradem4alpha

    Well, I am in Fearless’s camp regarding the intermediate term outlook for stocks. Here is a chart (that belongs to ultra) that helps me in assessing the direction for stocks (in the intermediate term works very well; but I don’t use it trading in the short term): http://stockcharts.com/h-sc/ui?s=$SPX:$TRIN&p=D&b=5&g=0&id=p19189507225&a=212227216&listNum=2.

  • http://thefxspeculator.blogspot.com Onorio

    Possible daily RTV sell on AUDUSD, i already got a RTV sell setup on the 4H chart on the break of 1.0602, the break of 1.0523 will confirm the daily setup.

  • Anonymous

    Noticed that 1yr Greek bond yields dropped to 97% from 98% today. Things must be turning around.

  • Anonymous

    NEW POST!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  • Anonymous

    So, true.  Yesterday looks like a fluke in the downtrend.  SnP chart formation looks weak.  Just a thought. 

  • Anonymous

    That is how this is going to roll.  1040 is a GREAT mid term target. 

  • Anonymous

    That is how this is going to roll.  1040 is a GREAT mid term target.