Monday VDX Updates...06.20.16

With the odds for a BREXIT yes vote steadily eroding over the weekend global markets pulled a switcheroo and pumped the NYAD to +5 levels most of the day.  There are still a lot of hedges out there and our Friday butterfly is already in the green a few cents.....which could (and probably will) all change dramatically by Thursday.
Looking at the VDX updates as of Monday's close you'd think that the US markets could care less about the BREXIT.  Volume was slow coming out of the gate and finished at 80% par.....most of the action being on the late selling side.
For now everything is neutral ...but in motion.  This is NOT a stagnant, consolidating market and IMHO the setups presented over the weekend updated for Wednesday's close are the best odds plays.
One reader wondered why the delta neutral setups for XIV/VXX or SSO/SDS wouldn't be on my favored list and the answer is simple...I expect volatility (short term) to be extreme on Thursday morning and the likelihood is that the limit stops would be blown through at the outset, never to be revisited for the remainder of the day. Delta neutral players know that means at the end of the day you have neither made or loss money....you've simply missed a whopper opportunity.

BREXIT Setups.....06.18.16

First of all, a disclaimer.  THIS IS NOT INVESTMENT ADVICE.  These two setups are just strategies you might consider to gain an edge from the upcoming BREXIT/BREMAIN vote coming later this week.  The vote could go either way and the talking heads are all over the map trying to decide if this is going to be another Y2K non-event or whether a BREXIT yes vote will create a domino effect of EU defections that will produce an unstable Europe filled with significant economic uncertainties.
Either way we can expect extreme volatility on the 24th and here are 2 simple option setups, a straddle and a butterfly. These are short term options, set to expire on the 24th so the decay factor really doesn't factor into the equation.
These setups focus on the SPY.  If you look at the same setups for EFA (ETF of Europe's largest 900 companies) you'll quickly see that the odds skew is clearly bearish, which makes perfect sense since a yes vote will slam Europe more (relatively) than the US.
First the straddle>>>> easy to set up, lots of liquidity and unlimited profit potential if things take off.

The butterfly is a credit spread and your profit potential is restricted at the outset. Randy describes a short call 1:2:1 butterfly and this is one spread using that symmetry.  Note that the breakeven bracket is narrower on the butterfly than the straddle.  The narrower the spread the lower the net credit so we have to open up the spread a bit to allow for a reasonable risk/reward. The Brexit vote IMHO offers a unique high odds wide spread opportunity.

BREXIT, BREXIT, BREXIT, etc.....06.16.16

Did I mention that the BREXIT has captured the market's momentum?  British opinion polls vacillate about odds for an IN or OUT vote....check with your local London bookie for the latest skew.
To my cadre of British Mosaic users...please clue me in on the current BREXIT pulse so I can adjust my bets accordingly.  Current odds TODAY favor a REMAIN vote, prompting the markets to reverse from a widely based global sell momentum.
Meanwhile...the current market undercurrent is still in a sell mode prompted by China and Russia, which we mentioned earlier in the week. The FED has also revised its hawkish babble and we're now likely to see none or only one rate hikes in 2016.
Following yesterday's post...below are the 130 minute bar charts for VIX and SPY with the 2 standard deviation Bollinger Band studies set to a 14 day moving average. Today's action was a technical forgone conclusion if you are all in on the Bollinger Bands strategy.
FYI.......130 minute bars are one of my favorite analytical timeframes (much more so than hourly bars) since it clearly divides the 6.5 hour (390 minute) trading day into 3 equal sections and helps (me) to better seen how momentum and volume are progressing from close to close.

Ready For the BIG One?...06.15.16

So the BREXIT deal has got the markets spooked big time...and probably with good reason. Fortunes will be made or lost following the June 23rd vote and trying to find an edge or a half way reasonable hedge is consuming many traders' energy. I've got some ideas of that and will put in my two cents over the weekend.
Until then here's a little study of old time Bollinger Bands applied to the VIX, SPY and XIV (inverse XIV ETN).  These studies came to light in a recent Schwab bi-weekly technical study group and suggest that there may be a nice odds forecast hidden in the path of the bands.  Bollinger bands have been around for decades of course and some folks swear by them and others swear at them...but, like any technical indicator, if properly configured and applied the results may be useful to your bottom line. These are NOT short term indicators and as shown cover 109 days of daily bars.
The RSI2 is shown in a separate chart window for reference and signal confirmation.
The VIX and XIV chart s are set to 2 standard deviations and a 14 day MA, the SPY chart is set to 1.5 standard deviations and 14 days MA.  The band violation signals are few but the reliability of those signals is very high.  We can nuance these studies further by honing in on shorter intervals such as 130 minutes and we'll post a couple of these later this week FYI.
Note the recent  signals in all three charts.

Charts courtesy of Schwab,,, StreetSmart Edge platform.

Ponzo Updates...06.14.06

This week's Ponzo Updates indicate a developing risk environment for SPY and VIX.  These are outlier scenarios but given recent nervousness about the Brexit those low odds situations may see increased odds for realization and we'll watch next week's updates closely to see whether those scenarios have become more or less probable.  I hope everyone looked at Mauldin's post yesterday...it sounds scary but he makes some compelling arguments. I love this tag...“Recession is when a neighbor loses his job. Depression is when you lose yours.” – Ronald Reagan
Although the market was red today the technicals actually indicated a positive day....falling bond prices and stabilization of the VIX.
We had some nice green runners today in the big caps GE and WMT although the financials got hit hard on fears that large segments of credit debt may go into default.

VIX Hits 20 +...Now What?....06.13.16

A couple weeks ago the VIX PONZO forecast a VIX 20 scenario and here we are at 20.73....way ahead of schedule.
VIX was up another  21% today and based on historical patterns we're due for a pause. (see below)
VXX, the VIX proxy ETN has actually traded 20 million more shares than SPY today although late action may be short covering volume.
The odds of a FED hike are now zero near term...most likely trigger date has moved to December giving the markets time to stabilize over the late summer although Mauldin is less than optimistic for the summer outlook and cites some compelling arguments.
The VIX is now at mid term resistance (see below) although today's M1 studies of VXX and SPY indicate the odds favor more downside based on the Short Term Momentum mode..

VDX Updates and Trader's Outlook...06.11.16

This week's VDX updates have TLT overbought and SPY neutral/oversold.  The 17% jump in the VIX on Friday has it peaking at (hypothetically) overbought levels but there may be some carry over selling into Monday after traders consider their positions over the weekend.
Note the VDX signal thresholds have been changed from the previous 40% to the current 50% and the moving average period has been shortened from the previous 14 to the current 10 day lookback.
Next Friday is monthly options expiration and we can expect heightened intraday volatility as the good, the bad and the ugly positions are re-aligned;   The market has so far avoided or ignored the Sell in May mantra and the supposedly catalyst for Friday's swoon, the Brexit, is more likely a smoke screen for institutional traders doing their usual thing rather than a genuine market mover.  Reflecting on yesterday's post on arbitrage opportunities in the Mexican markets ....this is the way it was with US markets only 10 years ago when specialists controlled each NYSE stock like a personal fiefdom and floor traders minted money all day long scalping the bid/ask spread.  Those were the good ole days when smart traders just tagged along with the specialist orders which were fairly transparent watching level 2 order flow.  Those days are long gone.