Friday, October 10, 2014

VIX & S&P 500 Index; Dying Crop in the Field

Within 10 points (.5%) of the S&P 500 Index record high, we examined a series of sessions that pointed to an extreme.  Specifically, we saw that the difference between the opening and closing level of the S&P emini had been particularly small for a number of consecutive sessions, implying an extraordinary level of indecision – a situation which called into question the stability of the prevailing bullish trend. 

From a closing VIX Index level of 12.25 on September 2, a level holding above support at a recently opened bullish window, this ‘fear’ index has jumped over 50% to yesterday’s closing level of 18.76.  The S&P Emini Index is 100 points (5%) lower.  Gravity rather than changed conditions appears more likely to be an influence which tempers any further advance in the VIX Index.  Otherwise technically, this Index shows signs of continued strength (higher VIX levels).   

It has been quite some time since there has been any level of excited market activity in front of holiday lengthened weekend.  Of course, we have Columbus Day celebrated on Monday and while the CME will have the Equity Quadrant open, the closure of the bond market suggests little activity then.  Therefore, if some sense of urgency takes hold regarding a need to reposition from off-side positioning, there could be some excited markets today.   

The litany of geopolitical situations combined with the heightened concern that a strengthening U.S. dollar does not mean U.S. domestic strength can be shared globally has recently caused some to re-price risk assets.  Repositioning is not complete and cannot be completed today.  However, there is a possibility that some accounts become prompted to move hard today and this could upset further the fragile equity market and press Treasury yields still lower.

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