I'm starting a bit later than usual because I wanted to do my due diligence on VXX because it is based on a daily rolling VIX futures of the first and second month and we have the current month rolling over in about a week, So I checked some other instruments like VXZ, a mid term VIX futures ETN that also is a daily rolling instrument that covers the 4th, 5th, 6th and 7th month of VIX futures.. I checked the VIXY, which is a short term futures ETF (VXX is an ETN). I also checked the VIXM which is mmid term, similar to VXZ, the main difference, one is by I-Path, one by ProShares.
I found even with the mid-term VIX Futures which are pretty darn far out, the result was not exactly the same, but the finding was, the VXX performance vs. the SPX today was a real event that bears not only mentioning, but really paying attention to. Oh and I also checked the VIX Futures themselves.
The end result of my due diligence, nothing changed from the last chart in this post at the EOD,
"Not Having An Easy Time of It" which was referring to the market's attempted late day ramp to the second SD of VWAP which failed. The last chart that caused so much research tonight, the VXX (
although I also posted numerous charts of VXX, UVXY and XIV all confirming each other).
The chart...
"Most importantly, even if they did try, VXX hasn't moved lower all day and this is the ramp asset of choice, not even in to the EOD."
Since I did the work, here are the charts you might be interested in, the reason being is that theVIX Futures have been used extensively to give the market that extra boost by selling them creating a feel among algos and other traders that sentiment is risk off, thus they fall as we have documented several times this week already as VIX futures have been used as "Levers" to manipulate the market higher.
The importance today is that the SPX closed up +1.20% (almost 19 points) vs yesterday at +0.35% (about 5.5 points), the movement in the VIX futures to the downside should have been extreme and they should have been moving down all day as the SPX made new highs intraday, they also should have been moving down at the EOD ramp to new lows, nothing like that happened which suggests either their using the lever in a different manner now (the opposite) or (Option 2) the VIX Futures buying was so intense (the reach for protection) that the VXX couldn't be moved lower.
The SPY Arbitrage model based on VXX, HYG and TLT sure seems like they were pulling the levers to move the SPX up at the EOD, which failed...
This suggests option 2 is what was really going on and that has some pretty big implications.
As for the other volatility charts, both longer term (which are quite long ) and shorter term, but not the VXX, another company's product...
This is the mid term VIXY VIX Futures (the daily rolling
4th, 5th, 6th and 7th month of VIX futures). To give you some idea of the price trend I think looking at the bigger picture helps, the SPX in red. Note a pretty clear correlation of SPX higher, Volatility lower.
Now a closer look of the same chart including today, note the red trendlines I drew in, notice anything different about today especially vs the last two days (SPX close Mon +.63%, Tuesday .35% and today 1.20% suggesting today should have seen the deepest move. Note the flat trendline today.
The 3C chart looks remarkably like the VXX chart, even though these are mid-term futures.
I learned that UVXY is actually better at tracking intraday VIX futures, the chart looks very similar between the mid term and short term
as well as all the confirmation provided in this earlier post today.
The other short term version of VIX futures (like VXX) is VXZ, note it also looks remarkably similar to the longer term VXX with distribution at the head fake move in yellow, distribution at the gap up earlier in the month and a positive divergence now, which would also fit with heavy buying-a real supply/demand issue.
And a closer look at the same VXZ.
As I mentioned earlier, I couldn't remember the last time the dominant price/volume relationship didn't work until yesterday and today, of course we have some additional information about the F_E_D giving out the minutes to at least 154 trading firms Tuesday morning so I think the record of the DP/VR can still be considered good.
As for tonight's, there's dominance in the R2K, R3K, NDX and SPX, only the Dow didn't have a dominant relationship. As you might have guessed, the relationship is Price Up/Volume Up, the most bullish of the 4 possible relationships, but oddly, an indication of a 1-day oversold condition that in the past (before the F_E_D "accident") has shown the next day to close lower very consistently. There's no long term indications from this indicator, but it's good for planning and tactical short term trades.
I'm not quite sure what happened to the CONTEXT model for ES this afternoon, but something very big happened.
Around 3 p.m. the ES model was showing ES overvalued by 20 points!, right now it sits at a negative differential of about 14 points.
What's got CONTEXT For SPX futures so out of joint? Again, here's the definition of the CONTEXT model and some of the assets it considers.
The world has become an increasingly inter-connected place to trade. Whether due to central bank liquidity or the shortening of business cycles, asset-classes tend to behave in highly correlated ways most of the time. The CONTEXT framework attempts to distill the world’s ‘risk’ asset-classes (interest-rates and curves, credit risk, FX carry, commodities, and precious metals) into a single-measure that can be judged against the US equity market in order to comprehend potential mis-pricings (or technical flows and liquidity impacts). Institutional and algorithmic clients tend to use CONTEXT as a confirmation tool for positioning against (or with) a trend.
Here are a few things I found...
Starting with Currencies which I'll cover in greater depth with a Futures update...
This is the Euro vs the SPX (green), there's been recent Euro support, but that fell away a bit today, especially intraday, which means an even more important currency is effecting the market and perhaps the carry trades.
Here's the longer term trend of the Euro vs the SPX, I've noted trouble in a lot of place, not the least of which is the very objective Breadth charts, this is trouble. The Euro should move wit the SPX (green), in white it even leads it from a deep pullback after the QE3 announcement Sept. 13th. The disconnect right now is severe.
Intraday $USD vs the SPX (green as usual) shows the $USD putting pressure on risk assets as it's normal trade correlation is opposite them.
There has been a recent pullback in the $USD and the market seems to have taken advantage of that, among other things.
However the longer term trend doesn't look good. At the green arrows the $USD has a normal correlation with the SPX, at the red box this is not normal and pressures risk assets, it also broke above an important resistance zone. Perhaps that's why the market at times seems to be rising in agony like the 3 weeks of almost 0$ movement before the SPX made a new high on the last day of the quarter on a 3-day weekend.
This is what the EuR/USD looks like, it has lost soe ground tonight, but it's not in any real trouble unless it breaks $1.30.
The Japanese are trying to deal with the Yen fallout which has sent 10-year JGB Futures limit down and triggered circuit breaker halts to trading 3 of the last 4 days since the BJ came out with their radical policy. They'd like to see $100 here, but the downside on the pair is not good for market risk sentiment. There's still very much a feeling that the BOJ already lost control judging by the enormous JGB market.
The other carry pair, the EUR/JPY is also seeing some downside which is generally not good for risk on sentiment.
Other indications...
Yields have already dropped and broken to a new low for the year and then some, this is representative of the flight to safety as people are willing to pay more for bonds (flight to safety) and yields drop, this is being seen across the globe, especially some of the safe haven countries in Europe, but this week even in some of the PIIGS, a couple of countries have negative rates, people willing to pay to lend money for safety.
You might recall the last time we built up core short positions, 9 of them in Q1 2012 and one of the indications telling us to do so was the negative divergence between rates and the SPX (see the two at the white trendline), all 9 positions were over 20% gains with no leverage by early June as our last short was put on May 1.
Note how much more negative the Yields to SPPX correlation is now, even lower than Q1 2012, while the PX is significantly higher.
Relative Sector performance today was also a bit odd, Financials saw weakness in to the afternoon as did Energy (which can be excused by the stronger $USD), also the high Beta momentum stocks of Basic Materials saw a risk off tone in to the entire day vs. yesterday. Tech finally came in to rotation with AAPL, you know my short term feelings about that, also the safe haven sector of Healthcare saw a big improvement today vs yesterday while Staples (also safe haven) saw some afternoon relative performance.
I'll be updating futures shortly, I like to let Japan open and give them a little time to develop. As of right now, the index futures for the SPX (ES), NASDAQ 100 )NQ_ and Russell 2000 (TF) all have significant 1 and 5 min negative divergences in each.
As for the 3 Pillars (Energy, Tech and Financials)...
XLE-Energy
XLF-Financials
XLK-Tech which did get off to a slow start.
