VIX DEATH BY CHINESE WATER TORTURE
5 May 2009 by TPC
14 Comments
The VIX has been on a painfully slow decline since the March 9th bottom. Risk appetite has slowly come back into the market and investors have grown increasingly confident. This is clearly a sign that investors are reducing their hedges and increasing their exposure to potential upside in stocks. But you just have to wonder if this isn’t the calm before the storm? Will this Chinese water torture quickly reverse into a 13,000 pound guillotine that slices and dices those who are long equities? I don’t know, but the risk/reward is beginning to look enticing….
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I don’t know, but the risk/reward is beginning to look enticing….
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if you donot know how can you judge the risk/reward? also risk/reward of what – getting long or shorting?
The one thing i don't understand is who is buying ( especially financials ) ? The volume in the short financials is really interesting.
Sounds to me like he's referring to the likelihood of a sharp spike in the VIX. Meaning, the risk/reward of being long volatility is starting to look enticing. Maybe some clarification on this one TPC. I think I read you loud and clear, but I am not positive either.
You got it FDO. I clarified the post a bit. It was a bit misleading and could have been comprehended as meaning the downside in VIX would accelerate….Thanks.
Short covering. That's who is buying. I've never seen so many mini short covering rally's as I have in the financials these past 8 weeks.
hey chief, i think you mean rallies, not rally's.
Mabe I mispelled it intenshonally?
It's been a long day…Cut me some slack.
Hmmm. I kinda hope so. I'm holding some Jun SPY puts as a hedge against my longs and I'd sure rather they spike in value and I actually make something than have to take a loss on that side of the sheet.
Plus I'd sure like to see a retest of the low rather than more of this exuberant march upwards. It's making me crazy!
Did you see this over at Zero Hedge?
http://www.contraryinvestor.com/mo.htm
Interesting take on the credit markets. The patient is still very sick. Go figure, he ate a whole lotta crap over the last 25 years!
Had been meaning to take a look at that. Thanks Onlooker.
TPC
What's your take on the speculative frenzy that has taken over the market lately? Speculators are running from one sector to the next sending things rocketing and plummeting. Is this a symptom of a broken market that's reaching a fevered pitch and may thus be on the edge of tipping over?
Just wondering what your perspective is on that aspect of the market.
Thanks
Well, Shiller's now touting stocks and houses. Ya think the feds roughed him up a bit to get him on the bandwagon? LOL
http://www.bloomberg.com/apps/news?pid=20601087...
I understand that his recommendation is general and conservative (basically). It's just interesting timing coming at the most overbought conditions of this rally.
TPC, The basis for short covering would be initial short interest. Do we have any stats/charts that points that fact ? I mean, prior to the upswing, did anyone observe high short interest ? I looked up the NYSE short interest ratio ( graph attached), and it doesn't indicate impending short-squeeze.
http://www.technicalanalysissite.com/charts/the...
I checked individual financial stocks too and those also don't show any abnormal short interest.
I don't have the data handy, but I know from personal experience that bank shares have been hard to borrow since early in the year. I am still receiving the same information today (actually got 3 different requests about no shares to short in various financial related ETF's or stocks).
I don't know how the advent of these 2X and 3X funds have impacted this, but my guess is these funds are making the shares more difficult to borrow. I know dollar weighted volume has soared in these funds. Also, we wouldn't necessarily have to see a huge boost in short interest to generate short squeezes. All it would take is a crack down on naked short selling and someone with some firepower and an incentive to drive the banks higher….I know the SEC has been cracking down on outstanding shares to short and many brokers have completely run out of shares or can't find any borrowers….
Let me know if you come up with anything. I'd be interested in your results.
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