Market Recap June 20th 2013

One of my current hypotheses is that we are rapidly approaching a tradable bottom. Why? People are seeking a greater amount of information in the face of market uncertainty. How do I know?

  1. The frequency of VIX-related posts by professionals is increasing.
  2. The frequency of VIX-related posts by mainstream journalists is increasing.
  3. A reporter from a highly respected news source called me today seeking volatility-related information.
  4. My blog traffic is spiking again. Yesterday’s traffic was 2x the average and today is on track to do the same.

My other current hypothesis is that none of this matters and we are not approaching a tradable bottom. For those looking for someone who knows the future…please look elsewhere. The only thing I can accurately forecast is that I will fail divination class if it is ever offered outside of literary fiction.

Fortunately, I am decent with math and today’s math was that the market was trending lower and the VIX higher. So, I trimmed back my exposure in the morning. With 20/20 hindsight it was a loss-preventing move, but it did not feel good at the time. It felt like a reactionary move and I’ve been giving back some of this year’s gains due to recent whipsaw action and reactionary moves.

To me, this is an ideal time to take a step back and evaluate my performance. What am I doing well? What can I do better to improve my trading performance? I plan to set aside some time this weekend to do just that.

SPY broke below it’s 50-day exponential moving average (EMA) today and is now just above its 100-day EMA. The VIX is definitely above its upper Bollinger band (currently at ~2.8 standard deviations above its moving average). It seems like everything sold off today, except the US dollar and volatility. Emerging market equities (EEM) dropped another -4.48%, gold (GLD) was down -5.35%, silver (SLV) down -7.91%, and US Treasuries were off -1.64%.

The CBOE put/call ratio hit 1.39 today. The last reading at this level was in mid-May 2012. Before that, it was during the 2011 selloff from Aug-Nov.

The VIX term structure is in very slight backwardation — the July VIX futures are just slightly higher than August futures. If the curve inverts into clear backwardation, it will be financial suicide to hold a long position in XIV or ZIV or a short position on VXX or UVXY. Right now, the roll yield and time decay for XIV and VXX should be minimal.

I am down to only a modest short position on UVXY at this point. I will certainly consider hedging it or covering if we move into clear backwardation. For now, though, I plan to maintain my position. UVXY loses tremendous value over any length of time when we are in contango. I continue to watch for stabilization and the opportunity to put cash back to work.

Today’s (zoomed out) charts are below, courtesy of and Trading Volatility.


Disclosure(s): Short volatility at time of writing.

SPY daily chart VIX term structure $NYMO $BPSPX $USHL