This may sound a bit strange coming from a born German (and now proud U.S. citizen) but I’m actually quite a fan of Sir Winston Churchill as I was always fascinated by his irreverent personality. He had a very interesting upbringing as a child due to a rather complicated relationship with his then renowned father. What’s most compelling however, and what stands in stark contrast to the so called political leaders of today, is how he actively sought out seemingly unsurmountable challenges and then faced them head-on and without compromise throughout his entire life. He is remembered by many timeless quotes but here is one of my favorites:
Effectively yesterday’s wipe out in equities will be remembered as the day the IV short trade died. As you all recall I have been rather prolific on the subject of implied volatility over the years and I’m not averse to admitting that it has become a bit of a professional obsession of mine. Thus it was just natural that I would be raising red flags when seeing (repeated) signs of a possible market dislocation on the horizon. Which I then did right here, cautiously and as productively as possible, given the fact that many a bears species have come extinct over the course of the past decade.
In last week’s ‘Tickling The Dragon’s Tail‘ I mused about the possibility of a VIX Buy Signal on the horizon. Which was followed by a sideways session in the S&P 500 with the VIX actually dropping lower. At the same time the VIX:VXV ratio pulled > its upper second standard deviation and all that means that the fun and games are just about to begin this week. Confused? I don’t blame you but as usual the ole’ Mole’s got you covered:
So we’re going to do a momo update today and I think it’s going to blow your mind. But first let me briefly explain what happened this morning which led me to look at those momentum and volatility charts in the first place. If you may recall yesterday’s lottery ticket on the E-Mini went bust by just a tick or two after which the SPX actually ended up bouncing back.
So I look at UVOL and it looks pretty damn bearish except of course for the late session candle painting pump. So of course I’m starting to wonder if we may be sloping over in the near term future, because with the Dollar heading into Italian Lira territory we should have busted [...]