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:
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.
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.