Volatility falls even lower

With the indexes remaining in a very tight range, the VIX continues to weaken. With a quiet weekend ahead, the VIX suffered most of its 3.5% declines in the closing hour.

Mr Market has no fear of possible 'events' over the weekend anymore.


VIX'60min

VIX, daily

VIX, weekly

Summary

The close of 14.74 is truly remarkable. Even a multi-day jump of 35% would barely get the VIX back to the 20 level.

The VIX weekly chart is offering a very nice descending wedge, which would normally be expected to break to the upside. Yet, how high will the next up cycle go? A mere 20..or 25?

Those who are still super bearish on a multi-month basis, looking for Sp' in the low 1200s by late Autumn are getting a great opportunity to load up on VIX option calls. Although, since it seems likely we won't start seeing any major declines until September, its arguably better to wait a further 2 or 3 weeks - due to the inherent decay in such time ticking derivatives.

More across the evening

Closing Brief

A very narrow trading range today, and across the week. A week to be forgotten.

The closing hourly index charts...


IWM

Dow

Sp

Summary

Very choppy day, with near zero volume.

You can see the underlying MACD cycle is crawling back up, and is set to go positive cycle on Monday.

*I'll probably post a few different things across the weekend. Clearly, it looks like no major downside action until September now..and there is still the issue of when the Bernanke will appear.

2pm update - still..dull

Still near zero-volume churn. They should probably close now, so everyone can focus more fully on the Olympic relay finals.


sp'60min

VIX'60min

Summary

So quiet, doubtless another very low volume day. Can you say 'bearish for Brokers' ?

More 'nothing' expected across the remaining two hours, a minor update after the close.

1pm update - is it September yet?

The only winners today are those HFT bots buying MANU at 14.01..and selling at 14.05. Rinse..repeat.


sp'daily5b

Summary

I still only have low confidence in this formation/idea, but its something to keep in mind next week. A bounce in the 1360s looks very likely.

VIX is very weak again...14s are possible before the close.

12pm update - a dull Friday

The declines remain mere noise.  The only entertainment so far today is watching 'them' keep a floor of $14 for MANU which was listed today.

VIX remains a touch red, but is showing inclination to go green again.


sp'60min

MANU, 1min

You can see the action of the algo-bot with the 'infinate buy @ $14' order. Its to be expected in this rigged market.  Regardless, it will be highly amusing to see this unwanted piece of junk trade under $10 within 3-5 weeks.


Summary

Slow motion market churn. What else can be said about it?

Time for lunch

11am update - don't get lost in the noise

It all remains minor chop, at what is increasingly likely to be at least a short term cycle top. We could easily hit 1380..or 1360 next week..and bounce right off..and then put in new highs.

The VIX remains essentially flat....in a fearless market.


sp'60min

Summary

Very little to add, other than I sure don't expect anything significant to happen today. We might see a little weakness into the close, but even 1390 would still rank as minor moves.

*am watching MANU, its amusing how they have an algo-bot with an infinity buy at 14.00. Next Monday they probably won't..and then a quick to decline to <10.00 can begin. 

10am update - minor declines

The declines remain minor, almost borderline noise. VIX is barely green. So far, this is arguably just more top-churn.


sp'60min

sp,daily5b

Summary

First target is clearly the low wedge channel of 1380. I don't expect that today, or even Monday.

With the VIX so weak - and it could easily flip red by late morning, lets be clear, these sort of declines are to be entirely dismissed. Even a pullback to 1360s is still very likely to see a bounce.

More later.

Pre-Market Brief

Good morning. Futures are holding onto their overnight declines, Sp'500 is -5pts, and set to open around 1397. 


sp'60min

sp'daily5

Summary

Many have recognised we've been building what is probably some sort of top over the last few days. So, we are due for some kind of initial down move. 1380 is the lower channel.. so it won't take more than 2 days to break what is a rather large wedge.

As noted though, until we are back into the 1340s, no declines should be treated seriously.

Good wishes for Friday trading!

The Naked VIX

To close today, lets try something a little different. No annotations, no lines, just a pure VIX chart covering the last five years of craziness.

Have a good long stare at this for a few minutes...and ask yourself one thing, when is the next explosion in volatility due?


VIX, weekly, 5yr

Summary

A few initial things that we can note.

1. We are without question at the low end of the VIX trading range. We really don't go much lower than current levels.
2. We've not seen a decent VIX explosion in over a year, we're kinda due for one.
3. VIX 50 has not been seen since the March 2009 lows. The most recent two explosions failed to breach the big 50. If 50 is broken at ANY point in the coming months, it will be the ultimate warning of a real risk of system-failure.
--

So, when will the VIX next explode higher?

A parallel to August 2008 - if you look at the pattern from May-August 2008, it is arguably very similar to March-August 2012.

I guess any doomer bear could justifiably argue that, but there sure doesn't seem any bearish momentum/energy out there right now. I certainly remember summer 2008, and there was a pretty different mood in the air back then. Even though I believe the US economy will formally slip into a recession no later than Q4 (which of course won't be confirmed until late April 2013), I find it difficult to imagine a VIX exploding beyond the low 40s this Autumn.

Regardless, considering the uncertainty in the global economy - and the low level of the VIX itself, picking up a few blocks of VIX calls sure look like a reasonable trade/insurance policy against market downside.

*VIX December Calls, $40 strike for $100 a contract, seem a very attractive strike level, with plenty of time on the detonator clock.
--

As for Friday, we have bullish pennants on the hourly index cycles, so we're more likely to gap open a little higher, 1410/12. Bears really need to see a good reversal day, a swing from 1410, with a close of 1395/90 would make for a really nice turning point.

Goodnight from London

Daily Index Cycle update

A mixed day for the indexes - even though it felt like we closed broadly flat.


IWM

Sp,daily5b

Transports

Summary

The Rus'2000 index had some moderate gains today. However, the R2K is still below the early July highs, and it is indeed the case that the Rus'2000 small cap index acts really weird a lot of the time. It ramped hyper-fast after the June low, but saw a major pullback..whilst the other indexes have now caught up.

The Sp' remains in a broad uptrend too. The attached chart highlights a new idea, but only have low confidence in at present. We saw a similar H/S formation a few weeks ago, only for Mr Draghi to open his mouth that Thursday morning and ruin it!

The old leader - the Tranny, had a pretty poor day, and lost 0.5%. Again, it has to be asked, is the old leader warning of underlying systemic problems?

Bulls have to answer the question, how can you have an economic recovery if the transportation sector - the very foundation stone of the modern economy, is not recovering?

One final piece to post up later...