Mole’s Market Momentum Musings March 2019

With equities running in circles and March nearing its end I thought this was a good day to put together another one of my notorious market momentum musings. Things have gotten a bit more messy lately on a day to day basis, which is usually when I decide to step back for a mental cleansing by means of a medium to long term outlook on things.

Let’s cover the simple stuff first. Although the bulls have not been able to get a clear leg up over the past few sessions VIX has been dropping precipitously. Which one would think is a good thing.

Well, maybe but maybe not. Looking at the preceding confirmed VIX Buy Signal what caught my attention was that step 1 – the close outside of the BB – was not very clear, meaning no distinct + 2.0 stdev signal spike was observed.

And what happened next? The signal ended up failing as evidenced by a reversal in the VIX and an ensuing run up into VIX 36 by late December!!

A possible repeat of this scenario makes me a bit nervous, so let’s look at more evidence:

Implied Volatility Term Structure (IVTS)

Also called the VIX:VXV ratio and we use it to gauge possible turning points in equities on the basis of IV differentials between the 30-day VIX and the 90-day VXV.

As you can see the signals here resolve in the medium term range (1 to 2 weeks) and have been pretty spot on over the past few years – especially when they occur > the 0.9 mark, which incidentally is my shitty/easy market delineator.

So we had a quick spike into shitty tape territory and it’s now dropping back down after signaling a buy signal – which I however do not take too seriously as it didn’t happen after a significant correction.

Incidentally the range since January has slowly worked its way lower just as it did throughout 2018. Accompanying that was a low volatility climb that was a PITA to trade which is why most of us do not remember 2018 very fondly. 2019 seems to be lining up to be a bit more directional but has now reached a make or break point for any remaining bears.

So what happens here over the next two to three weeks will be crucial to set the tone for the remainder of the year.

A slightly different perspective on the same theme – I’m using a stack of two BBs to squeeze out a bit more actionable context, i.e. when to buy and when to sell the swings. We haven’t seen many signals one the past few weeks (actually I forgot to mark a few on the bottom – sorry) and now a sell signal has been triggered.

Again, this is a more long term signal as 2.0 BB touches should usually result in a correction of some kind. Which of course we are already in right now. However from prior precedence there is no telling as to how deep those corrections will be as the overall trend can roll over selling pressure and thus limit downside corrections.

A ton of charts waiting below the fold. Please meet me in the lair:

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