Monday, March 3, 2014

VIX - How Today Was Actually Bullish for the Market; But Six Ways it Could Turn Bearish

VIX spot is quoting 16.07%, up 14.8% small with IV30™ (the vol of the vol) up 12.8%. The Symbol Summary is included below.

Provided by Livevol

The market is down today and VIX is up on uncertainty (read: risk) surrounding the happenings in Ukraine.  To get caught up on that news I have included three stories below from this weekend which basically do the trick (all from

This weekend's headlines
1. U.S. Tracks 'Thousands More' Troops Flowing into Ukraine

2. Kerry Warns of Consequences for Russia
Incursion 'an Incredible Act of Aggression,' Secretary of State Says

3. Ukraine’s Acting President Orders Military to Full Combat Alert

OK, now what?...

While the market is down over 1% and VIX spot has popped to over 16%, so far, I think this action is bullish. Yeah... bullish... But this stands for today. Tomorrow could be a different story.

I have written extensively about VIX in the past, especially the vol of the VIX. You can read those posts here:

VIX - Part 5: Doomsday/Bubble Scenarios: Its the Volatility of the VIX that's Our Signal; Not the VIX Itself

VIX - Doomsday is Over; But Did You Know This? I Didn't...

Update #3: Doomsday Scenarios: It’s the Volatility of the VIX that is Our Signal; Not the VIX Itself

Follow Up; It's the Implied Vol of the VIX that is Our Signal; Did a Bi-partisan Congressional Vote Bring us to the Brink of Another Great Depression?

VIX - Doomsday Scenarios; It's Not the VIX that Matters; It's the IV of the VIX That is Our Signal

Let's start today's analysis with the Charts Tab (two-years) below. The top portion is the VIX spot price, the bottom is the vol of the VIX (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Provided by Livevol

On the spot side, we can see that VIX does this ebb and flow "thing" fairly often.  I have highlighted the recent peaks (and the move today) in yellow.  Note that all of the prior peaks are above the current spot.  So, we are seeing a lower high.

In a scared market, news like Russia invading Ukraine, mobilizing 150,000 troops and 9,000 tanks, Russian flags flying over Ukrainian cities and words from the US like "grave consequences" would send the market into a tailspin.  Not just the US market.. Global markets.

But look at the global markets after the weekend:

FTSE -1.49%
DAX -3.44%
CAC40 -2.66%

Nikkei -1.27%
Hang Seng -1.47%

S&P 500 -0.86%
Dow -1.14%
Nasdaq -1.00%

In short, the US markets are reacting much less abruptly than Europe and Asia.  The DAX index was on the "scary" side, but the rest... eh... a down day, but not a panic.

We can see this "lack" of panic in the volatility of the VIX. Let's turn to the IV30™ chart in isolation, below.

Provided by Livevol

I've highlighted three phenomena:
1. The peak of the vol in the VIX was ~115% (the top yellow line)
2. The current vol of the VIX is ~82%
3. The vol of the VIX has popped in the last few sessions from a low of ~65%

So, the fear in the "fear index" is right about middle of the road (it's actually in the 51st percentile annually), well below the annual high and yes, it has risen of late.

Again, that 51st percentile number reflects... no panic.

Finally, the Options Tab is included below.

Provided by Livevol

Check out that volatility number for the May options across the top in green font: 68.88%.  The option market reflects increased volatility in the future VIX, but focusing on the near-term (Apr options).

See how Apr vol is up 9.8 volatility points, while May is up just 2.4 volatility points.  As of today (and this is for today only), this "Russian thing" is being digested by the US market as:
1. Short-term
2. Not that risky
3. Relatively low impact

How could all of this change?
1. Bullets are fired
2. A full on Russian invasion
3. North Korea gets feisty (they rather quietly fired 2 missiles in to the sea this weekend)
4. The Syrian uprising and the chemical weapon collection/dispatching gets inflamed
5. Iran decides... to speak up

and there's always number six....

6. US economic data misses expectations and the "weather effect" turns out to be more than just weather.

For now, the US market is proving remarkably resilient to external shocks... or remarkably apathetic.

If it's apathy, externalities will make the next post on the VIX will show a reading of 18%+ and the IV30™ of VIX will be 100%.

Here's one more headline to chew on:
Ukraine won't kill the bull market

The crisis in Ukraine has the hallmarks of a Black Swan event -- one of those unforeseen shocks that keep investors up at night.

But even though stocks around the world were falling Monday, several experts are confident that the political turmoil in Ukraine -- and the growing risk of a war with Russia -- won't derail the bull market.

This is trade analysis, not a recommendation.

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