Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
I have to think that this short-term leg down in the SP500 will not be finished at least until the VXO touched 18-19%.
VXO 18 was strong resistance for three and a half months (December-March) until the upside was violated on a spike to VXO 22. That, of course, proved to be a false breakout and equities, which often trade in the opposite direction of this widely accepted fear index, enjoyed a Snapper back to S&P 1150.
I don't see anything "magical" about VXO 18 as a level but it IS the 200-day moving average and will likely be a focus among active Minyans (if and when we get there). Currently, and after 'enjoying' a stochastic buy signal a few days ago, the VXO is dancing around the 50-day moving average (16.60). I don't think that'll matter in the short-term but it's worth noting nonetheless.
I will offer (again) that I sense a disconnect (in general) between the level of equity vol and the state of the Minx. We've discussed the outsized moves in the other asset classes and I remain of the opinion that it's a matter of time before we see the same type or action in stocks. Is that time right now? I can't tell you for sure (nobody can) but the potential for a trap door certainly exists.
There are a litany of strategies that can be employed to take advantage of this potential disparity. Professor Succo penned a piece earlier that discussed one such strategy but derivatives are like clothes--each person has their own preference and they can be changed daily. It should be stressed that options aren't for everyone and they should only be traded by professionals. The last thing you wanna do is put your hard earned money to work in an instrument you don't understand.
Thanks kindly and fare ye well,
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter