Vital Volatility

Yes, I’m back and all I’m going to say about this Houston trip is that it was one of the worst in my life. Pretty much everything that could go wrong did – every step on the way. And on top of it I caught a nasty head cold which has the sole benefit of making my voice sound like (a cigarette smoking) Roger Whittaker today. Crooner loving milf all over the country may rejoice. Don’t worry I’ll be here all week.

Alright, so I’m not going to talk about my pitfalls, toughen up and just lick my wounds. But not without saying that I will never ever fly Southwest again as they apparently are unable to keep their cabin temperature above 60 degrees Fahrenheit once over 20,000 feet – on four separate legs I may add. And seriously now – hire yourselves some good looking stewardesses – the crew of troglodytes you have prowling those isles should be sent off to some freak show. Which incidentally could be more profitable than freeze drying hapless passengers for a living.

Anyway, the tape has been a lot of fun in my absence and we have a few charts to look at. But before I do let me thank Volar and Fearless for holding the fort while I was freezing my ass off in Southwest’s flying refrigerators. Good job guys and I really enjoyed your contributions.

Although I have to say that a lot of the comment section on Monday made my spin. We had a deep push outside both BBs on the daily SPX chart. We had a clearly divergent Zero indicator – again, props to Fearless for reading my mind on that and posting an excellent wrap up chart – it was spot on.

And then, if all that wasn’t enough – we had this:
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,13,9,12,5]

That’s right – we pushed outside the 2.0 BB on Mr. VIX. On itself not a valid signal – granted – but in combination with my SPX chart and the Zero definitely worth a few lottery tickets the long side. No long calls though – for obvious reasons and again thanks to Fearless on elaborating on his call rape strategy. Let me warn you however – this kind of stuff is not for the faint hearted and you better know your option greeks inside and out.

Anyway, that was on Monday – what mostly interests us today is the evolving VIX buy signal. Which I may add is almost baked in unless something very dramatic happens in the next two hours. What this suggests is that we will see higher prices in the next seven days, at least according to the rules.

Here’s the market making perspective on volatility – as you can see it’s been rather consistent in that short term volatility as expressed by SKEW-VIX continued to suggest more turbulence while medium volatility as expressed by VXV-VIX has remained flat. If you’re new to the block then let me dumb it down for you – market makers apparently are not expecting a P3 situation here. They are however pricing some short term swings – and those we have been getting in spates. Emotions are high – especially among retail traders.

More short term we are now in a very fortunate position for structuring our trades: I do expect a bit of a reversal here soon and as long as we remain above yesterday’s lows we should be pushing higher right after. The daily spoos panel shows us a few more handles before we run into a bit of a cluster of resistance. Once we make it above 1180 we should be ready to rock & roll.

You can get positioned via the daily as I have highlighted a pretty important support zone. A retest of that zone would not surprise me and if we fail it we may actually go back to either the lower 25-hour or 100-hour Bollinger line. Again, suffice to say that we cannot drop through yesterday’s lows. That would be extremely bearish given that we most likely are flagging a VIX buy signal today.

Happy trading folks – keep it frosty and clean.

Cheers,