New VIX Low, New XIV High....6.19.14

Intra day saw new VIX lows and new XIV highs accompanied by big pops in gold and silver and, not surprisingly, XLE went over the 100 mark today as the IRAQ oil field situation has oil traders betting on the long side.
Given the extremely low VIX its become increasingly difficult to mine premium using covered calls or credit spreads and although for the first quarter of the year traders use to be able to collect a fairly reliable 1-1.5% / month using 3o day ATM covered calls on the majors that return has now dropped to .5-.75% and even in those situations the risk/reward curve has gotten skewed to the risk side.
IMHO, it's actually hard to make money in the current markets despite what the get quick ads might suggest.

VIX Drops 12%...what's next?....6.18.14

The FED news contained no surprises and in the absence of any near term policy adjustments the markets took a clue and jumped to new highs.
The VIX dropped a whopping 12%. back to 14 month lows on monthly VIX option expiration and we're now left with a new bullish (still low volume) signal adding to the suspicion that SPY 200 is not far away.
XIV again soared like a rocket into new territory.....this is not normal market behavior.

GAMMA Update....6.17.14

For the true Lazy Man investors here's the most recent update of the weekly rebalanced GAMMA model which was designed to weather both bull and bear markets and incur minimal trading activity.  SSO (SPY x2 Ultra ETF) has been the leader for a while and racked up some nice gains.  The metrics report reflects NO money management stops...we just go with the flow.  The report covers the last 7 years using a top 2 sort.

The TrendX charts below show today was characterized by minor gains...except for XIV, which jumped like a rabbit ahead of the FOMC minutes tomorrow reflecting the historically typical bullish pop the day before such meetings.
No FOMC surprises are expected although given the recent new highs there may be further tapering.....previous FOMC moves in this direction have been received with a market yawn so, again, no large volatility response is expected.

What, Me Worry?..Part 2.....6.16.14

For younger readers the above was the motto of Alfred E. Neuman, the fictional mascot of MAD, the classic comic magazine, and it reflected a nonchalant attitude about life.
Following my comments on Sunday's post here's a similar (more informed) article on the possible consequences of the current mid-East political turmoil and it's definitely a reason to actually start worrying about what may be coming down the pipe now that huge funding resources have been looted..
I have already alluded to one consequence of the rising political tensions in the form of higher oil prices and here's two looks at a SPY, QQQ, XLE M3 analysis...the first with the auto-stop turned on and the second with the auto stop turned off.  The risk off second model has been the real performer showing that sometimes a What, Me Worry trading program works better than a more conservative risk focused strategy.....keep in mind that a risk off strategy works in this example because we have chosen to focus on issues such as XLE which we know from hindsight (the left hand side of the chart) is a hot sector.  If we are strictly focused on the right hand side of the chart (tomorrow) then the auto stop control remains the focus of a risk sensitive trader  (both sample models below use a top 1 sort).

A Little Relief.....6.15.14

Now we need to watch out for the Trap Door set up ...when the market appears to be in a rally mode and then quickly plummets to near short term lows.
Friday's "rally" was extremely low volume in the morning session and there may have been considerable short covering in the afternoon to contribute to the early gains.

Oil in the form of XLE has been unstoppable and there's every reason to belief it's only going higher.
Political instability is not limited to the Ukraine, Iraq, Africa and pockets of new unrest seem to appear daily.
While the rising cost of oil and gas to US users can be traced to questionable govt. policies favoring exports over domestic markets leaving consumers to OPECs whim, the net effect of foreign conflicts only exacerbates the problem and provides fuel for oil supply uncertainty fears and the subsequent excuse to raise prices.....just my opinion.  Meanwhile...XLE is showing superior momentum and relative strength.

Happy in Cash...6.12.14

A timely switch in yesterday's M3's ranking to cash kept us out of today's carnage.
Rather amazingly SPY has gone from an RSI2 reading of 100 to 7.5 in 2 days!!!
That's a dramatic change of relative strength.
Weak retail sales reports, increased jobless claims and increased business inventories all contributed to the rise in uncertainty about he economy and the President's comments about needing to do something about the deteriorating political climate in Iraq probably provided the icing on the cake as nobody wants to relive the cost in dollars and lives that the decade long foray there cost us the last time.

Below is a version of the 6 ETF  BETA model  XIX,SSO.SPY.SH.SDS,VXX which covers the full beta spectrum of SPY from uber bullish to uber bearish. By looking at a VIXEN type comparison of current up versus down pressures its easier (for me) to appreciate the magnitude of market momentum as well as the relative alignment of + and - beta factors in the various SPY derivatives (the other 5 ETFs).
The first chart is daily bars from Jan 2014, the second a more close up 10 minute bar view of the last 4 days.

World Bank Speaks...6.11.14

My friends over at the World Bank must have been feeling sorry for me and the conflicted M3 signals so they cut their outlook for he global economy, now projecting 2.8% growth in lieu of the previous forecast of 3.2%.  US growth projections were also dropped from 2.8 to 2.1 %.  Since the markets are typically looking 6 months ahead it's not clear that this announcement actually precipitated today's drop but M3 went to cash at the open as XIV dropped like a stone and the previous short term ALERT was validated.

I hope to roll out the real time M3 signals within the next couple weeks to make capturing these midday reversals much more transparent.