Bear Market Rally
Yesterday’s hypothesis of an unfolding bear market rally appears to playing out thus far. However with indices having recovered about 38% the easy part of the journey is rapidly coming to an end. With bad news galore is it now time to back up the truck and load up on short positions?
I usually preserve this one for my intrepid subs but since everyone’s hair on fire I thought I’d strike off my good deed of the year and share it with everyone.
The IVTS Hacker has been rather prescient when it comes to daily swings in equities. The smoothed signal clearly lagged the raw one yesterday, which bolstered my perspective on a bit of bullishness on the horizon.
What I did NOT expect however was for both signals to continue higher and given the range we are in I openly admit that I don’t have an easy answer for this either. It’s not that I don’t have theories as to what may be going on.
One that barely has made the news is that various over leveraged hedge funds engaged in what’s commonly referred to as the ‘base trade’ (i.e. long treasuries via repos and short treasury futures) have been blowing up recently. Which accounts for the many of the occasions you watched equity markets fall with the VIX dropping at the same time, and pushing up together just like yesterday.
Be this as it may, clearly backwardation is alive and well in the VX futures, which in turn means that short term IV still exceeds medium to long term IV. And that in turn fuels our hypothesis that we are dealing with an all too common bear market rally.
Although the ES futures have systematically been stepped down overnight I will be looking for short term long opportunities in today’s session.
This will take a bit of finesse, which means I will be watching the Zero like a hawk. Speaking of which, true to form the Zero has been extremely useful over the past three weeks. I mean, you be the judge, but unless your silly MACD, RSI, or stochastic can do this then I suggest you don’t waste time and sign up right here.
Two juicy setups below the fold for my intrepid subs:
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Chart of the day:
Not something you get to see every day…