Monday, November 12, 2012

VIX Got Crushed.

The big news of the day was the 10%+ drop in VIX when the indices were near flat. With November OpEx nearing and markets already having corrected about 80 points in 40 days, there does not seem to be an imminent danger of collapse. More so because politicians of different hues are talking of finding a common ground for the fiscal cliff. I think it has also to do with the short term oversold position of the indices. The rubber band is too stretched and will snap back somewhat before we can see any more selling. If the VIX action is any indication, most likely we will see the weakness to resume by the 4th week of November and continue till mid to end December.  How far it will bounce is debatable but anything is possible and the actual QE3 starts from tomorrow.  If you remember I am not short yet.

Come to think of it, so far we have had only 80 points correction in SPX and SPX is actually closer to the top than to the bottom. And already we are oversold and the sentiment is quite negative.  Despite the drop in VIX, the put call ratio is high, which means most likely retail is short.

A perfect recipe for a bounce.

I have written in the past that action in the Forex does not confirm with the market perception. If Euro is about to break down, why it is still holding 1.27 line? The ”mad as a rabid dog” rant  blog tells us the Greek is about to go out of Euro Zone or be thrown out. Money is going to run out on November 14thfor the Greeks. Then why their stock market is trading near the top and not near the bottom?

(Chart Bloomberg)

On the weekly chart of SPX, till we see SPX break down below the rising trend line, it is still a correction, not a collapse.

 As of now that line in the sand stands around 1330-1340 and I do not think SPX will go down below that any-time soon. Even that 1330 may be tested only by the 3rd week of December, if at all. There is a chance that I may be wrong and everything is going to hell in a hand basket but instead of shorting the market now, I am looking for other opportunities. I am long Nat.Gas and will continue with that long position for a while. I am long gold for a quick trade till November 23rd. I see crude bouncing but I do not want to touch crude now. I see copper bouncing and JJC close to a short term bounce which will be an opportunity to short copper. So you see, there are plenty of fish to catch and instead of getting hung up on the market correction a la 2008-9 type, look for opportunities elsewhere.

Overall, I continue to look for a bounce between 1400 – 1430 SPX. So not a big bounce. By no means the selling is over and I will short the market by way of out of money puts or calls but I will wait for the November OpEx to pass.

That’s all for the Monday evening. Thanks for sharing my thoughts. Do remember to disable Adblock and watch out for Amazon link.