Thursday, May 6, 2010

S&P 500 and the VIX - Is the Market Collapsing?

VIX is 26.18 up another 5.1% with the S&P 500 at 1,154.98 down another 1%. The LIVEVOL™ Pro Summaries are below.

On Feb 12 I posted this blog (click the title to read it): VIX Skew - Market Collapse Impending?
There are some nice skew snaps and comps to the market collapse in that one.

At the time, the VIX was ~25 and the S&P 500 was 1,075. So the VIX is actually up since then, as the market has also risen.

A quick 3 month chart of the S&P 500 is included (click to enlarge). I've highlighted the recent drop.

The question that haunts everyone is if the VIX pop will further as the two (VIX and S&P 500) are linked. Here is a 2 year chart of the S&P 500 on top and VIX on the bottom - I've highlighted the VIX rises and corresponding S&P 500 dips (click to enlarge).

Finally I've included a chart for the VIX by itself over the last two years (click to enlarge).

You can see that it's at a crucial level. A rise from here pushes it past the Jan/Sep/Aug highs and then the next level is the Jun/Jul highs. The recent activity with GS and Europe definitely gives the feel that it's "make or break time." Having said that, last time we felt like this in Feb (see VIX chart), the market ripped and VIX dipped.

The Skew Tab snap for the VIX (click to enlarge) illustrates a relatively normal picture.

The risk is front loaded, flattening out as we go into late 2012...

So the question: "Is the Market Collapsing?"... My answer....

Maybe... If Euroland is a cascading disaster, then yes, probably. If not, then who knows what lies ahead. There's definitely still a strong market psychology toward expecting the worst. 2008 isn't out of our minds at all. Having said that, Europe is the first thing since 2008 that actually looks possibly contagious.

A more important question is... "Do you think the market is collapsing?"...

Or even better - do you think the vol is priced correctly one way or the other? If we're headed up, the vol is super high... If we're headed lower, maybe it's time to buy the downside, even though it's exploding.

This is trade analysis, not a recommendation.

Legal Stuff:

No comments:

Post a Comment