Mid Year Momo Update

 

Mid Year Momo Update

We’re half way through the year and the upcoming 4th of July weekend officially marks the beginning of the long awaited vacation season. Since most of you will be either mentally or physically absent tomorrow let’s devote whatever remains of our collective attention span to a comprehensive perspective on where we are on the momo front.

By the way there’s another reason why I think it’s important to remind ourselves where we are in the ongoing market cycle. Wherever I poke my nose these days I see nothing but bearish sentiment, for a whole host of reasons. Since I’ve been in this racket for quite a while now I have accumulated all sorts of newsletters I somehow found myself subscribed to – or unsubscribed from over the years without much success. Bottom line: quite a few of them are expecting *the big one* once again and that soon.

2017-06-29_irrational_exuberance

As it’s my job (and yours as well) to only consider verifiable technical evidence with a positive track record I thus consulted my own momo charts and see what’s going on. I think nothing expresses the current situation better than this simple long term VIX chart. I have highlighted the periods during which the VIX oscillated below the 11 mark for more than a day or two over the past decade.

And the verdict: Yes, eventually we should expect a medium term or even a long term correction. Eventually. Which means perhaps sometime this year if we get (un)lucky. Markets don’t turn on a dime and especially markets enabled by quantitive easing.

2017-06-29_Vol_VIX

You may recall this chart from last month – I call it ‘VIX easy time’ in that the green areas show us long opportunities after a volatility spike in the VIX (i.e. realized vol of implied vol). And apparently we’ve just come out of a green range which was followed by a very brief yellow range. From here it can take a LONG time until we even get close to a meaningful correction – weeks most likely, perhaps even months.

2017-06-29_VXV_SKEW

The one exception is the VXV (i.e. quarterly IV) versus the SKEW index which in theory is supposed to alert us to long tail risk (which it really doesn’t). The ratio however is working very well for me on the long side, however on the short side it’s a bit more spotty. You may note that in 2014 (all the way on the left of the chart) we had a similar occurrence of short signals which remained unheeded. What followed was a pretty nice correction a month or two later but it was comparatively mild – not ‘the big one’ by any measure.

Now if you think everything is hunky dory then you’re actually mistaken. Please step into my lair for further perspectives:

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independence_day

Happy Independence Day!!!

This will be my last post until July 5th (next Wednesday) – so no update tomorrow morning (Friday). Of course all systems and services will run as usual but if you experience any issues simply send me an email to admin@ and I’ll sort you out within a 24 hour period. Happy Independence Day!

Published at Thu, 29 Jun 2017 13:25:20 +0000

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TheWire

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