In the face of the Fed tapering bond buying activities, a global political crisis, and the time of the year (between Labor Day and Halloween) that is always scary for the stock market the S&P 500 continues to be resilient. Due to this ability to keep bouncing back I believe the 2013 stock market deserves a theme song. This song should be the type that adds a little extra spirit during a montage in an 80’s movie. I think “Nothing’s Gonna Stop Us Now” from the 1987 classic feel good movie Mannequin is a great choice for that very song.
As noted the S&P 500 has been resilient and posted almost a 2% gain on the week. This pushed VIX down by over 10% and had a similar impact on the ETPs associated with VIX through long futures strategies. Low volatility funds performed near in line with the market which may be a hint that this past week consisted of a broad based push higher in stocks.
While reading VIX related tweets this past week I came across a mention of the CBOE S&P 500 3 Month Volatility Index (VXV). I’ve added that market to the weekly performance table below. VXV is basically a three month measure determined in the same method as VIX. Bill Luby who contributes periodically here and runs the VIX and More blog – vixandmore.blogspot.com – brought up comparing VXV to VIX to develop a market indicator many years ago. Basically VXV is often at a premium to VIX so a good method of putting them together is as a ratio (VXV / VIX). The chart below is just that ratio compare to the S&P 500 over the last 12 months.
Note on the chart there are a few instances where the ratio of VXV to VIX falls below 1.0. That seems to coincide with a subsequent near term bottom in the stock market as well.
In VIX options things were fairly quiet being the week before the week of expiration. It seems the focus moved to October fairly quickly. The guys in the pit like to focus on the at the money straddle to get an early idea of where VIX might settle. The September futures closed at 14.80 and the VIX September 15 Straddle finished the day at 1.05 which is a little tighter than recent history. The thinking on this was that the Fed press conference / announcement on Wednesday comes after September VIX settlement that morning. So the straddle is saying (if it could talk) that the market may be calm Monday and Tuesday with the storm coming later in the week. The storm part shows up in the VVIX which finished the week very close to 80.00. This is a bit elevated compared to most of 2013 and indicates some buying pressure remains in the October contracts.