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Mole’s Market Momentum Musings 3/2019
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Mole’s Market Momentum Musings 3/2019

by The MoleMarch 4, 2019

I was chatting with my quant buddy Tony a week or so ago and he asked me what ‘MOMO’ meant, which kind of had me stumped. In my mind it was an abbreviation for ‘market momentum’ but obviously this doesn’t make any sense. I was trying to figure out where and how I had absorbed that term and couldn’t figure it out. Nevertheless I have used ‘momo’ for many years now without thinking about it, which goes to show that we all fall prey to intrinsic habits and more often than not aren’t even aware of it.

That however doesn’t mean I have to keep doing it, so henceforth market momentum here at Evil Speculator shall be known as ‘mamo’. Alright, with that out of the way, let’s get to the good stuff – shall we?

As usual we are looking at implied volatility first as it presents us with a general assessment of market downside risk. Of course it’s a relative perspective, hence the term ‘implied’.

The take away here is that risk perception has dropped significantly after a relentless rally to the upside, one that has repeatedly rolled over valid bearish reversal signals.

As you can see the SKEW:VIX ratio (SKEW on its own is pretty useless, which is why I am using this one) has now pushed outside its upper Bollinger. So is it time to short the market?

Frankly I would be very hesitant to make that call. Since I started to track this ratio and even before that it seems to me that upper breaches during and shortly after a falling Bollinger have a tendency to be ignored.

However maybe this time it’s different, so let’s continue on and look at more evidence. Of which there is plenty.

If you are a purist then you may want to look at the VIX on its own and here it is against the SPX. What I’m also plotting below the price panel is the ROC relative to the VIX.

What do we see? Increasing complacency often produces dropping realized volatility in IV (yes, RV in IV – it’s a thing). When it bottoms out at around -25 bearish things can happen. But they don’t always do!

Like in January when perms-bears were licking their chops at an opportunity to exploit yet another big leg to the downside. Trolls were staging a siege on the evil lair but ended up being blown to pieces by bullish artillery.

Here we are looking at the VXV:VIX a.k.a. the inverted implied volatility term structure. The short signals it has offered us have been mixed and often delayed in the past few years, however starting in 2018 they became a lot more reliable, thus suggesting that a new market phase was in play.

More recently however, since the late 2018 lows, we have observed two failed bear signals. Again, this is not unusual and I concede the current one may actually still pan out in the near future.

Quite a lot more waiting below the fold – please grab your decoder ring (and perhaps a tall cup of java or your favorite tea) and then meet me in the lair:

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About The Author
The Mole
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 the usual social media waterholes.
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  • Jason13

    +1

  • Jason13

    Platinum finally getting a much needed pullback. Haven’t jumped back in yet but planning to. Not given up on Wheat. Building positions here, looking for reversal this week. Dipped toes back into shorting Palladium (yeah I’m nuts), started a small short last night (1506 area). Closed Euro short for some pips but I’ll wait out further action.

  • http://www.captainboom.com/ captainboom

    I dunno Mole. You could keep using momo, just like a QWERTY keyboard. There are better keyboards, but due to momentum, it keeps being used 😉

  • Yoda
  • Ronebadger

    Just when…did a point become a handle? Handle is just a cool synonym for point? Like “coding” is a cool word for “programming”?

  • ridingwaves

    Stopped out of GC 1/2 L….volatility crushed to lowest levels in couple years….

  • phantomflash

    In the past, with at least some futures contracts, I’ve seen some people use “point” ambiguously to mean a fractional movement, more like what I would call a “tick.” Evidently the term “handle” evolved as an unambiguous way to specify the number to the left of the decimal point. I’ve heard this usage almost since I started trading futures, about 1999.

  • https://evilspeculator.com Sir Mole III

    Well if you say ‘momo’ I’ll know what you mean 🙂

  • DaVerg

    i was just sent this new publication with some interesting articles, some of you may find it worthwhile. I am not affiliated with this publication, don’t know if owner of this site will allow this post or not. So be it, delete it then or not.

    https://mydigitalpublication.com/publication/?m=59480&l=1&mc_cid=b6bbb73651&mc_eid=5d32a42b1e#{%22issue_id%22:570949,%22page%22:54}

  • ElToroLoco

    I exit the ES short on restest of Globex low but watching pa to see when I reenter or not… If it takes the globex high it will be fireworks but I expect the same if it takes the globex low. so Sit on hands 🙂

  • ElToroLoco

    I didnt continue NG longs when I saw that it didnt gap up yesterday… it might be just consolidaiton week, so I will see by end of the week whats up…

  • Jason13

    1/3 position back into Platinum

  • BobbyLow

    Got stopped on my crude short and now am back in net long. My system is in whipsaw mode right now. That’s OK because it has to get through choppyness to get back into a nice runner. There will be another runner, I just don’t know what direction it will be in.

    Speaking of runners, I’m still stalking the Banking Sector for a short. By the time I decided that this sector might be tradable for me it was already about 8 weeks into a run on the Long Side. It was way too far into a run for me to jump in. This run has now just began it’s 10th Week. From the Coulda, Woulda, Shoulda, TS Departement: my entry on 3X FAS would have been 43.79 and it is currently trading at $64.07 so FAS is up over $20 per share as of right now. Defininitely a case of wishing I was in a trade but at the same time glad that I wasn’t a perma-bear shorting this sector all the way up.

  • ElToroLoco

    oh well ES tanking lol

  • HD

    Exhaustion gap and key reversal below 2787. If / when.

  • Jason13

    Wow is this it?

  • bankwalker

    another brick in the wall …

  • Jason13

    Keep an eye out for tweets 😉

  • HD

    Sellers above 2800 gaps 3:3

  • Darkthirty

    And queefs………..

  • HD

    Did the VIX help at all? Nope

  • Jason13

    Palladium just shit the bed too….I’m expecting Copper to as well..

  • BKXtoZERO

    AAAAAAAAAAAAAAAAAAAAAAAAAAARRRRRRRGGGGGGGGGGGG!!!!!!!!!!!!!
    I knew it. I called it. I think the FED was tipped off by my TD Ameritrade account. The watch me for their signals. Sheeez

  • Jason13

    Zero is definitely participating…

  • HD

    Hits from 2800 ish level since 2018 have been as much as 90 the first day and 350 over 14 sessions.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • http://gerb-reloaded.blogspot.com Gold_Gerb

    {big F’in grin}

    no sawbucks for U.

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • bankwalker

    Julie is missing all of the fun. I hope she’s still short.

  • Sp00nman

    Let’s see what the bears can do. Russell broke below last weeks low and SPX just bounced off of last week’s low. NDX the strongest.

  • Darkthirty

    I’ve been in cash just watching…..didn’t see an edge either way. Watching 1 minute charts will show just how irrational this “market” is. Wouldn’t be surprised to see a green close

  • BobbyLow

    Something spooked the mkts. Waiting for current candle to complete at 1 PM EST and if not much changes between now and then, I should be able to open my first short in the Banking Sector. It’ll probably be a loss but at least I should be in sync with the sector.

  • https://evilspeculator.com Sir Mole III
  • ridingwaves

    GC since my stop out looks bullish now…..oversold on daily chande and RSI…..1277 200sma looks solid resistance…

  • BobbyLow

    Ah Ha! It looks like the old “Nigerian Hat Trick” on Oil was brought back out of the box. LOL

    https://oilprice.com/Energy/Crude-Oil/Oil-Rises-Amid-Nigeria-Oil-Terminal-Shutdown.html

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    plan the trade, trade the plan.
    I haven’t forgotten the Yen relationship.

    https://finviz.com/futures_charts.ashx?t=6J&p=h1

  • Darkthirty

    Was trading “ghost” signals years ago, I think it was an algo signal because they were 100% payoff

  • https://evilspeculator.com Sir Mole III

    Explain – but even if it means what I think you mean – those would not show up on bloody TDA 😉

  • Darkthirty

    There’d be spikes up or down that would disappear in minutes, thus the ghost moniker. On yahoo and stockcharts at the same time , wasn’t watching TDA at that point. Move would begin within 3-5 minutes

  • BobbyLow

    Shorted Russell 1000 Financial Services Sector Via 3X (FAZ).

    Market’s probably going come back and say it was only foolin but it is what it is.

  • http://www.captainboom.com/ captainboom

    @molecool:disqus I notice that the usual multiple time zone time stamp that you have on the zero isn’t showing. Is that because of where price is, or did something happen to it?

  • Darkthirty

    ES VWAP 2795

  • Darkthirty
  • Julie 35 – 25 – 36

    Yup The breakdown from a wedge can be fast and furious. YEAH !
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • ridingwaves

    I have been short rut via tza for a week, never went below my buy price, Rut looks like it wants to test lower if it breaks 1560, 1541 and 1490 come into play…
    https://uploads.disquscdn.com/images/fddf9b0f7187451643b4ccd660409ede6fcc834645f6556931644554cf49f253.png

  • bankwalker

    long /NQ

  • nirav777
  • Darkthirty

    Saw a lady with high heeled work boots, got them at macys. Swore they weren’t work boots though………..LOL

  • Yoda

    Lol, you beat me to it

  • Darkthirty
  • BobbyLow

    Good for you. I would just like this China deal to be done with one way or the other. We keep getting these mini rallies everytime someone (could be market makers) put out a call that a deal is close. The market has got a lot of milage out of those rumors. LOL

    BTW, has your area dried out yet?

  • BKXtoZERO

    Fake out bear trap or start of something?

  • ridingwaves

    Nope, another pineapple express coming thru tomorrow….
    https://www.goes.noaa.gov/dimg/west/fd/rb/10.gif

  • Jay Thomas

    Perhaps momo is short for MOMentum, where an o was added to make it sound cute. That’s a guess based on language patterns. Linguistics is like that – it rarely tells you why, just what is. (Anybody who says they know why is selling something/looking for a grant. And that holds logarithmically more for any political topics.)

  • mSquare

    By my count this is now 4th or 5th time we have backed off $SPX 2800 level. How many times more does this get tested?

    I guess I’d tend to side with the consensus (they are right more times than not) – I think we made the new highs already (and perhaps even till 2020 USA elections)

  • Julie 35 – 25 – 36

    SPX Friday’s gap up on the open that was sold into that we discussed Set the stage for today
    JULIE

  • ridingwaves

    I think the guy named it in honor of Momo, the masseuse at the rub and tug experience place near Jupiter city…..

  • Julie 35 – 25 – 36

    HI BK If there is follow thru tomorrow to the downside That would set the stage for a stronger pullback IMO A breakdown thru the 21 ema would be very bearish
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb

    I did. It’s kind of funny.

  • BobbyLow

    Damn! I hope you eventually dry out faster than we have. It’s been 6 Months since Hurricane Florence followed by Hurricane Michael flooded us out in parts of the Carolinas and we still have pockets of water along the roadways etc. Whenever it rains even a little bit it helps keeps these areas wet. I hope we get a long hot and very dry summer to evaporate some of this water. Jeesh

  • BKXtoZERO

    Long some TVIX 29.62, I drew a trendline earlier of declining tops on TVIX 10-20day chart, figured a pullback to test break out was a shot at an entry for someone who chickened out Friday. It crossed right around here 29.5 area

  • Roebear

    Mole you might need a trip to Tibet:

    Momos are shaped like halfmoons or like plump, round purses, and although they can be made with store-bought wrappers, most Tibetan households in the US have a small wooden dowel reserved for rolling out the thin rounds of dough.

    But there are always sha momos lurking off the menu, she said, for the Tibetan regulars who would be aggrieved not to find them.

    Yak meat can be lean and tough; wise Tibetan cooks made their sha momos juicier by adding a bit of oil and water to the filling.

    After sucking out the broth, Tibetans dab sepen, a brick red chili paste, on a plate, and dip the momos in, holding them with fingertips.

    Wangdu said that in his family, momos are not eaten on the first day of Losar, because they look like purses for holding money — and the mind is supposed to focus on purification and family rather than work and financial worries.

    Tibetan cuisine thrives in exile

    The Tandoori Chicken Momos ( Rs 75 for eight), which followed, made me eat my snobbery.

    They dress the momos with tandoori marinade and bake them in a tandoor .

    Let me know how Yak tastes, I’ve had Moose and it’s not bad, prefer Reindeer but Santa hasn’t been back since…

  • BobbyLow

    Although MA and MO combined can make sense in an accurate Quant kind of way, MOMO sounds a hell of a lot better than MAMO to me. LOL

  • Darkthirty

    Probably shove it through in the overnights

  • Darkthirty

    Missed this move down, not bothered at all. As bizarre as the market has been lately, I couldn’t see an edge that wouldn’t or couldn’t be overridden without reason.

  • zzezzezz

    …and i wouldn’t be surprised if everything makes new (relative) highs today…

  • Julie 35 – 25 – 36

    Will not go above 2793
    JULIE

  • zzezzezz

    oh well, clearing 2750 today would’ve made a nice reversal day

  • Julie 35 – 25 – 36

    IMO Today is the shot across the bow .. Bulls beware
    JULIE

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • Jason13

    LOL

  • BKXtoZERO

    We have them running scared. Ow Julie. One of them slipped on my liver…. I think we got their attention now!

  • zzezzezz

    i hope everyone just closed their eyes and BTFD as usual….

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    Nice divergence there near the session lows.

  • https://evilspeculator.com Sir Mole III

    Reg. Gartman…

  • ridingwaves

    yummy, yummy, moved stops up, now eyeing additional shares on any pullback….
    Shorts going to have to fight now…..

    ridingwaves Mark Shinnick 21 days ago
    keep close watch of AVXL, I’m up 20% right now, presentation at investor conference today, Clinical trials are getting filled up with patients, Retts, Alz., Parkinsons……chart if firming up, could pull back to 2.15-19 area..

    19 is the year for this symbol, any good news out of these trials and FDA will fast track it……and pps will explode with 46 million share float, trailing stop on any substantial moves is must, most likely will dilute much higher to fund rest of trial or fast track move….unmet need for all 3 diseases….

  • https://evilspeculator.com Sir Mole III
  • https://evilspeculator.com Sir Mole III

    Would it be cruel to tell you guys we had 70F this weekend in Valencia?

  • https://evilspeculator.com Sir Mole III

    Scratch that – it was 82F / 28C.

  • bankwalker

    kind precise there Julie … nice …

  • Julie 35 – 25 – 36

    RW Just a 50% retracement
    JULIE

  • https://evilspeculator.com Sir Mole III

    uuuuh – it just touched 2795 – don’t kill the messenger

  • ridingwaves

    we needed the rain, BobbyLow not so much….. going to be an amazing year for desert wildflower bloom

  • ridingwaves

    50% of what?

  • Darkthirty

    HA! I have 14F right now

  • http://gerb-reloaded.blogspot.com Gold_Gerb
  • evilasevildoes