What Has Happened Since the F_O_M_C

This is what I've been most interested in, this and the way VIX and Treasuries as well as gold, react.

However, we may have found something in VIX that is right in line with Wall Street never showing their cards.

If you look at VIX, you'd think there's ZERO fear out there, however those of you who have been a while for some time have seen me feature the CBOE's (same people who put out VIX) SKEW Index.

What is the SKEW Index? From the CBOE:

"The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500® returns. Investors now realize that S&P 500 tail risk - the risk of outlier returns two or more standard deviations below the mean - is significantly greater than under a lognormal distribution. The CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew"."

SKEW measures out of the money options, essentially expectations for a "Black Swan event" that is 2 or more standard deviations away from the mean while the VIX is constructed for 30-day volatility with SP-500 options at/near the money.

When SKEW is at 100 the perceived  probability of an "outlier" event or Black Swan is very low, the higher SKEW, the higher the perception is that an event of 2 or more standard deviations away from the mean are rising, since the F_O_M_C, SKEW has been rising to the top end of its historical range (100 to 150 although 150 has only been seen a handful of times).

 Since the F_O_M_C last Wednesday, SKEW has been rocketing upward, the perceived tail risk of a Black Swan event has risen dramatically which is what I was arguing last week between inflation and the F_E_D's inability to do anything but raise rates if the trend is not brought under control, even though Yellen called it "noise", almost dismissive of it because I think she knows what smart money knows, it doesn't matter what the F_E_D says, if the inflationary trend which is already above their mandate continues, they have no choice but to raise rates and likely long before current guidance which has also been reflected on the "Dots" over the last 2 meetings, the consensus of F_E_D members is that rates will be higher at the end of 2015 and 2016 for the last 2 meetings, even though you'd never know that from the policy statement, only if you looked at the associated charts released with the statement.

 SKEW since the F_O_M_C to the far right.

An interesting event that occurred at the July 2011 mini crash of -20% which I have already noted showed the same trend of lower yields for the 10-year benchmark in this post from last week, 10-Year Yield (Bemchmark) vs. the Market.

This is the actual chart...

This is the 10 year yield at or just before the 2011 sharp plunge of 20%, the only other places there were divergences were the 2007 top, an upward yield rise at the 2009 lows, here at the 2011 decline and right now.

Interestingly...

The VIX had dropped before the event while SKEW shot up, just like now, it gives the impression all is fine while smart money is hedging and buying out of the money options expecting an outlier event like this mini crash, the exact same thing is going on now, whether smart money is doing this intentionally as the above chart would suggest or not can't be proven, but it would allow them to knock VIX, ramp the market and sell in to those VIX monkey hammering gains and giving the impression all is well while retail holds the bag.

If we look at action since the FOMC, the SPX closed today at +0.02%, R2K at -0.29%, Dow -0.07%, the NDX +0.06%, the Dow -0.07% and Transports -0.52%. Since the FOMC the same averages have seen "follow through" or lack of it of +.28%, +0.06%, +17%, +0.01% +0.17% and -.19% respectively, in other words, other than the initial knee jerk on Wednesday, there has been ZERO follow through.

I've been looking for specific 3C action since the FOMC, here's what I've come across...

 IWM 15 min with significant distribution today, keep in mind there was never confirmation of the knee jerk move. Mirroring this is TF/Russell 2000 futures...

The red arrow is the FOMC, this is a 15 min chart of R2K futures, note the strong distribution today as seen above on the IWM.

 The QQQ since the FOMC, again non-confirmation of the knee jerk, this is above and beyond.

Mirroring this...

The same trend since the FOMC in 15 min NASDAQ Index futures

 As for the head fake move expected, the QQQ/NASDAQ 1000 can be seen as a double top of sorts, even though the Feb. rally highs were totally retraced, the move above them was the same time as the SPX's expected head fake move, the 3C trend calls accumulation at the lows before the Feb. rally and then after the retracement, in to the second top much worse distribution.

 This is mirrored as well on the 60 min chart (there are those that are worse, but I'm looking at this specific area.

 As shown earlier, SQQQ confirmation, this is intraday.

This is on a 60 min chart, almost the mirror opposite.

As for SPY... I posted the charts for all timeframes today here, SPY Multiple Timeframes

The confirmation in SPX futures (ES)...

ES 15 min since the FOMC mirroring what we've seen in the SPY.

However as you know we have long term divergences...

 2007 distribution, 2009 bottom accumulation and some of the worst distribution I've ever seen, it's almost hard to believe, but the F_E_D supported the ability to distribute huge positions in to higher prices which is why I call QE a Stealth Bank Bailout.

And the proof we have of this beyond 3C...Bank of America/ML was kind enough to show us who's selling, who's buying...

Institutional money follows the same path as 3C, this is why I have said I believe this is an opportunity way beyond what the market has shown the last 5 years, in fact an opportunity no one alive has seen (you may recall the 3C charts of the Dow in to 1929 vs now). Institutional clients have been net sellers through the same period 3C shows them as distributing, hedge funds as well, but look who has been the bag holders of recent! RETAIL!

This is classic, Smart Money leaves the building with retail holding the bag at all time highs as the market moves to all time lows.

 What is different about right now? Other than distribution getting worse, the worst seen, Yields are now in the red zone in which I showed (see the link above) that they have called every top without a single misguided signal, 2007 top, 2011 20% crash, the 2009 bottom and right now.

QE is being phased out, this is the only reason the market was able to make any gains, the Bernanke Put, it is being removed and with inflation, Smart Money doesn't believe the F_E_D has any choice but to raise rates, the inflation trend is there, the only thing the F_E_D can do is raise rates and that=BEAR MARKET. This is why I keep pointing out that the market front runs the F_E_D, in other words the market will discount (move down) long before rates move up.

Since last week's F_O_M_C we have seen a number of small signals such as the inflationary hedge, gold outperforming, the Safe Haven Utilities way outperforming, it seems obvious exactly what the market is focussed on, inflation which forces the F_E_D's hand.

In addition to all of the other things we have seen since the F_O_M_C, the rise of SKEW apparently is showing out of the money options seeing a lot of interest, in other words a move so large, these out of the money options will be worth something and in a big way since the F_O_M_C. Why? I can't say, perhaps the dots, perhaps Yellen's dismissal of inflation as noise hinting the F_E_D will be caught off guard again as they were in 2007/2008.

This trend though shouldn't be ignored, especially given 3C charts before, the head fake move, 3C charts during, gold rising, yields falling alone is excellent reason...

 10 year rates falling in to the 2007 top, the exact top to the far right.

 10 year yields falling in to the 2011 -20% decline in late July /early August 2011

And 10-year rates now...

 and now of course we can add...

 SKEW since the FOMC.