Posted by sbaxman111 on 13th of Apr 2015 at 09:52 am
Larry's Levin's Morning Commentary
Wake Up Call?
Things used to be a lot easier. The US Equity market was
single-handedly the best forward-looking indicator to gauge the
overall climate of the world’s economy. But now with, let’s just
say, a helping hand from our Central Banks, it is more and more
difficult to get a handle on what is going on. So, we have to do
what we always to and adapt. Where do we turn? For me I turn to the
VIX complex. It is widely traded and doesn’t have the overt hand of
the Fed skewing its value. Specifically, I look at two “fear
indexes”, the VIX and the VXV. From the CBOE website:
“The CBOE 3-Month Volatility Index (VXVSM) is designed to be a
constant measure of 3-month implied volatility of the S&P 500®
(SPX) Index options. The VXV Index has tended to be less volatile
than the CBOE Volatility Index® (VIX®), which measures one-month
implied volatility.”
I tend to look at two major things, the absolute value of the
VIX and the time structure. I watch how VXV and VIX are valued
relative to each other. Taking a look at these I notice two things.
First, is that the VIX is at 5-month lows and the ratio between VXV
and VIX suggests that we may have experienced at least a short-term
top in the S&P.
These two charts is enough to give me pause:
and…
Historically, the market has struggled to hold its gains when
this ratio closes above 1.2.
Let’s just say now may not be the time to initiate any fresh
longs.
Posted by frtaylor on 13th of Apr 2015 at 07:20 pm
Very interesting, thanks for posting. Would like to see it
matched up against RSI or something similar (CCI?). Matt or Steve,
what's your take? Do you prefer a different indicator to give a
signal or high odds for a top being in?
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Larry Levin - Wake Up Call?
Posted by sbaxman111 on 13th of Apr 2015 at 09:52 am
Larry's Levin's Morning Commentary
Things used to be a lot easier. The US Equity market was single-handedly the best forward-looking indicator to gauge the overall climate of the world’s economy. But now with, let’s just say, a helping hand from our Central Banks, it is more and more difficult to get a handle on what is going on. So, we have to do what we always to and adapt. Where do we turn? For me I turn to the VIX complex. It is widely traded and doesn’t have the overt hand of the Fed skewing its value. Specifically, I look at two “fear indexes”, the VIX and the VXV. From the CBOE website:
“The CBOE 3-Month Volatility Index (VXVSM) is designed to be a constant measure of 3-month implied volatility of the S&P 500® (SPX) Index options. The VXV Index has tended to be less volatile than the CBOE Volatility Index® (VIX®), which measures one-month implied volatility.”
I tend to look at two major things, the absolute value of the VIX and the time structure. I watch how VXV and VIX are valued relative to each other. Taking a look at these I notice two things. First, is that the VIX is at 5-month lows and the ratio between VXV and VIX suggests that we may have experienced at least a short-term top in the S&P.
These two charts is enough to give me pause:
and…
Historically, the market has struggled to hold its gains when this ratio closes above 1.2.
Let’s just say now may not be the time to initiate any fresh longs.
Very interesting, thanks for posting.
Posted by frtaylor on 13th of Apr 2015 at 07:20 pm
Very interesting, thanks for posting. Would like to see it matched up against RSI or something similar (CCI?). Matt or Steve, what's your take? Do you prefer a different indicator to give a signal or high odds for a top being in?