Friday, 27 March 2015

VIX suggests little Fear as Markets Fall

Wednesday saw quite a substantial sell off in the US markets with the Dow down almost 300 points and the ES and Nasdaq down similar percentages. Thursday saw some further selling pressure pre cash open, with the Nasdaq printing down over 50 dollars and the ES down 20 points. At that moment you begin to think will the buy the dip pattern hold, or is this the time when it is just going to go.
One clue was the VIX, with the move up in the UVXY only 8% which isn't much considering it has lost 60% plus of its value in the past month or so. It was interesting watching the VXX and UVXY trade as it would reluctantly go up as the market was going down, but on any up tick it would be smashed back down.
All the VIX futures are trading in Contango meaning there is less near term fear in the markets, and hence the bounce was to be expected as the 20 point pre market down move was made back up by the end of the session.
It seems buy the dip is here to stay for a while, as long as easy money is available.

My long VIX plays are not playing out as I hoped so I have just continued to roll them in order to give me duration, however I have lightened my deltas slightly so not to leave me too exposed. Next week is a short week for many of us, although NFP will still be traded on the Friday with most of Europe shut. This is likely to mean the markets will likely be far more illiquid around the time of the release. However the number will likely have a greater impact on the markets as the FED is indicating raising rates at some point this year.

Thursday, 19 March 2015

Worsening Macro Environment Lifts Stocks

The FED downgraded the Economic Outlook yesterday despite removing the "Patient" wording.

For the past few months, worsening outlook and worse data is stock market positive.

SPX regained 2100. Bonds rallied over a point, and as expected there was a dollar sell off. One of the more notable moves was in the Eur/Usd, which moved up over 400 pips on the announcement only for it to pare the whole move by today.

Euro fundamentals haven’t changed, so the big move up was exaggerated by stops before coming back to pre-announced levels.

This is the type of move which has made it harder to keep a position on. Since the swings are very big , deep pockets are required to withstand the moves.


As far as the FED decision goes, it wasn't surprising. Like I've been tweeting, they don't have the conviction to move forward with monetary policy. Since there is such a divergence with Europe in terms of economic progress.  Given the strong Dollar, it is unlikely they will pull the trigger, which is going to leave easy money stimulus on the table for even longer, which may or may not have big repercussions in the future, with the main threat  being the inflated stock market.

As far as interest rate Spreads go, shorting Short Sterling was the play as the Spreads have all come back down after a 10 tick move up. I was short 11s in the Mar17Jun17 to take a tick. It is close to trading 9s now, I will look to initiate a long position at 8s if it gets there. I prefer playing the back months as the range is much tighter, so makes picking the levels much more predictable.

 I'm still a buyer of volatility, although I’m feeling the heat on those positions. There seems to be no fear, and at this rate it looks like volatility ETFs will go to zero as drag weighs on the products, but I still believe there will be a meaningful sell off some point soon, which will push volatility up.

Tuesday, 10 March 2015

Volatility dragging despite Sell off

In the past few weeks the rampant upside in the market has understandably left those thinking that markets never go down. The VIX is representing this as it is trading back into the 13s last week and despite the big sell off on Friday the Volatility indexes still seem to be under pressure on every up tick in the market.
The DAX is experiencing the biggest gains on the back of the ECB QE programme. There seems to be such strong support despite the lofty price rises over the past month, its as if the ECB are buying DAX futures as part of the programme. The consequence of this programme is likely to be the same as it is in the US. Companies will borrow at ultra-low rates and instead of feeding it back into the economy through investment and jobs it will just repurchase stock  (which will prop up earnings per share), which are already at record highs continuing the buy at any price strategy.
But we can see how this can go wrong as was the case with Oil companies who repurchased alot of stock when Oil was in the 80s and 90s, and now with the fall in Oil prices stock buy backs have been suspended.
However as it stands, it seems there is no follow through to any downward move so you assume the market will continue its current pattern which is to buy into any dip.

Strategy wise I have been accumulating long Vol Positions,  as I'm looking for that contrarian play. I'm also looking to short the Short Sterling curve on the back of the big rise in the past week, with Dec15Mar16 trading 10 ticks above where it was a couple of weeks back, a short here seems like a good risk/reward play. I continue to hold my Dax short option play, and have rolled it onto April Expiry now, so hoping for a 5% correction at least in this index. Finally I have gone long some Gold in small size on the back of the big drop after Non Farm Payrolls.  

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before,...