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Easter Eggs

Easter Eggs

by MoleApril 21, 2011

This is volar- quick and dirty sentiment update.

I will start with some comments on the VIX… given that it is making new lows (remember 06). First, the VIX it is not exactly sentiment, it is an implied value. I use it as sentiment, but, one must keep in mind that it is not a sentiment survey – it is price based on math. Or in other words, option makers do not pay extra premium for options during holidays – they sell it; it takes panic volume (specifically market orders) to crash a market, and that presumption requires traders to not be sitting down with their families….. Remember this is a GAME of human nature.

The VIX (1 month implied volatility-1MIV) is trading below the VXV (3MIV) for a reason, there is a holiday, and actually volatility will be greater after the holiday. One of the oldest option making strategies – selling options before earnings to retail suckers who think they are the only one who knows an “event” is coming. If you have time look at volatility smiles on bond options before the employment report and after, and you will get my drift.

Again, news is utterly irrelevant.

This chart is not exactly exciting- just shows that the VIX tends to find excitement (with some probability) around July.

This is the VIX/VXV or 1MIV relative to 3MIV.

This can last for some time, but is a warning of complacency- just like the low VIX. I suggest charting the VIX futures contracts or just use an IV time curve. Notice that things are very extreme, however, if we make new highs, they will get more extreme. Longer-term, just like BOB’s chart, quite bearish.

Here is my sentiment index. Basically, the crowd is bullish, but, I would love to see a new high in the ES and a trap.

I showed you the rate of change last week- nothing new there.

I know many of you think I just run excel, but I am truly passionate about price action. I am nothing like your fearless leaders here, but FWIW….

I am watching my sine waves, and they suggest that it is very difficult to break down here- but more time is necessary for a break out. Now there are two formations worth mentioning. My thoughts are that nothing is easy as humans only think one way- group think. Or I always trade against triple tops, and I don’t like H&S bottoms, so the un-obvious trade is bet against both!

Or what I am saying is this:

I don’t trust the obvious, bc the obvious is obviously wrong (to quote another friend). So I am looking for a setup, and it would be nice from a long-term standpoint to trap the bulls short-term, bears medium term, and then kill the sheepigs at new highs :-).

Oh and silver has 90% bulls, DX 20%. This is sentiment trader data.

Have a great holiday!


About The Author
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.