Update on US equities according to the VIX
Posted on 12 October 2010
We had a look at a VIX derived forecast for the S&P500 a couple of weeks ago (here). With the snapping in volatility over the last couple of days, we finally get a decisive break in the chart:
Volatility has now officially joined the QE trade – as near term vol has been sold aggressively (as noted at Merrill Over Matter):
Very few things in the markets are absolute certainties. But that hasn’t stopped the Fed from trying. What was initially $300bn in Treasury purchases over the next 12 months (on the back of MBS repayments) has quickly become $1.3 trillion. Multiply this by a factor of ‘x’ to take account of the market front-running the Fed, and we have one hell of a wave to wash through risk markets.
I can’t help thinking that man wasn’t meant to play God. Isn’t this what got Dr Frankenstein into all that trouble?
5 responses to Update on US equities according to the VIX
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What’s that saying…yada yada yada ..don’t fight the Fed?
Clearly we should all be opening our wallets and loading up on the riskiest, crappiest bonds and equities we can find.
Then again, perhaps some reverse pyschology is in order: if we know that QE1 proved to be nothing but a temporary fillip to equity markets, we should expect QE2 to produce the same result. Therefore the investment strategy will be to get in and out very very quickly. Taken to the final extreme, we all opt to get in and out so quickly that markets fail to rally, as we all sit around waiting for them to fall back again, from a high they never reached, from a rally that never came. Maybe.
Justin,
Did you know yada, yada, yada was ranked #1 in TV’s 50 funniest phrases?
While they are stimulating (fiscal and monetary), the markets will be bid. I’m happy to follow their lead if we get a little uncertainty ahead of the FOMC meeting.
Still the game is not self sustaining as you say and increased systemic risk is the result. The only certainty I’m confident about is that when the market is all one way, it doesn’t take much to turn it back the other.
Cheers
Rohan
“I can’t help thinking that man wasn’t meant to play God” Funny, I can’t help but think that man is God!
Does all this macro-eco stuff ever put money in your pocket? It seems like mental masturbation to me. Which like most forms of self pleasure is fun and feels good, but I’m just not sure how one reliably profits from it. Unless of course you turn it into prostitution! Ignorant I surely am.
A little word association – God, man, masturbation, prostitution… Dr Freud would have a field day
The reason for following trading in the VIX is that the option market does not always agree with the broader equities market. Sometimes, through the price and volume behaviour, the option market can indicate emerging trends or pressures that are yet to surface elsewhere. Inter-market spreads are relevant whether they be in relation to currencies, interest rate or whatever. It works for me – and has for others.
If you are questioning the value of the academic activities that you are currently undertaking then fair enough. Academia is wallpapered with irrelevant research. It’s what they get paid for.
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