End Of This Easy Ride?

A final reminder that equity futures have now rolled into September, which is the official front month contract for the next three months. Time flies indeed! Before I know it I’ll be shopping for Christmas presents again and bitching about the cold weather. In the interim we’ll have to earn our keep, so let’s see if the brand spanking new ESU7 contract offers us a decent entry opportunities:

Before we get to that however let’s do a quick detour and have a peek at implied volatility. The VIX is still hanging around in extremely low territory and if you think that this means equities will be correcting anytime soon then I suggest you take a  look at how long it took a decade ago. Equities continued climbing for almost an entire year until all hell finally broke loose. And remember that the Fed has acquired a whole new bag of tricks since then.

The reason for the title of today’s post is this chart which shows us what I have termed ‘VIX Easy Rides’, referring to the sections marked in green that precede significant lows and a drop of the VIX’ ROC back below the 50 mark. The easy ride usually ends when the ROC drops through -50 and it usually does. Not always however which is why I’m frankly not sure if this is just a quick tick up or if IV’s volatility (i.e. implied volatility’s realized volatility) will continue dropping back from here.

Historically it seems that once the -25 mark has been breached we enter the cyan periods. And those are a lot harder to read. The tape usually continues higher for a while but can take quite a few creative detours on the way. Which means long campaigns are now getting more tricky because they are becoming more volatile. Makes sense, right?

Here’s the volume profile on the 60-min E-Mini – I’m seeing a pretty pronounced selling cluster right above us. So the whipsaw may continue for a while and I’m not exactly eager to get exposed here and would prefer a quick stab lower. If we get that then I may grab a long position on Monday.

Another reason for my hesitation is that I have seen a good number of very promising looking setups crash and burn lately and what they had in common was that I was taking entry near the recent short term highs. So another spike low would be much appreciated 😉

Of course the downside of not being long here is that I am risking missing out on a significant move to the upside. As you can see the Bollingers on the hourly are very tightly compressed and that usually means a release is coming. Which of course may be to the downside, unlike IV realized volatility is direction incognizant.

An alternative view on realized volatility – here I’m looking at cycles. Once again it seem an RV expansion is just around the corner. Unfortunately I will have to err on the cautious side and wait for a better entry formation.

Campaign Updates

Silver and gold got stopped out yesterday and have since continued lower. I don’t see any technical support here until we drop back down into 1259 or better yet 1249 where we’ve got the 100-day SMA. And even that one has been completely ignored as of late, so let’s just say we don’t when and where precious metals will find a floor. Not a good entry candidate at this point.

Soybeans is looking good and I’m moving my stop up to -0.5R. It’s too early to go for break/even and I’m pretty sure that we’ll see a shake out attempt here in the near future.

I’m happy to see the EUR/USD lower but it hasn’t stopped me out just yet. And frankly I have some doubts that it will if those NLSLs on the daily panel continue to provide support. Either way the EUR is still looking bullish as heck and Draghi’s speech yesterday has done little diminish the appetite of the Euro bulls. At best we’re talking a short term correction here and I’ll be sure to take full advantage of it today (by cleaning out an ATM or two).

USD/CAD is also still in play but I really do not like all that volatility which seems to come out of nowhere. For such a polite country the loony seems to be acting rather inconsiderate and I thus expect an official written apology by Mr. Trudeau personally.

Alright that’ll be it for this week. See you all on Monday! Prost!