(Editors Note: Title is from a Bill Murray SNL skit. Nice reference from Andrew Giovinazzi). So the Friday 4/4 rout in volatility did not materialize. Stocks dutifully opened higher with VIX marking lower, and then everything went the other way. Today the big premiums we saw in VIX futures got chewed up as VIX Apr (15.48) closed just about flat with the VIX cash (15.57). The VIX line in the sand at 13% is holding much better than Kaddafi’s Line of Death, and seemingly for months longer.
All we could read about in Feb was that Emerging Markets were toast and bonds were going to tank on the rising interest rates. Well the EM’s are coming back pretty strong and bonds have reversed a good part of their slide. Beside the Russian panic of 3 weeks ago, longer term T-bonds are at their highs for 2014. This is on top of a near straight line of Fed bond purchase reductions. You have to hand it to the Fed to exit the bond market and leave rates lower. That is a pretty sweet trick.
charts courtesy of Livevol (R) www.livevol.com
It would seem it is really helping the EM’s. Besides the Russians causing their own problems and Argentina not making the news the EM’s have staged a huge comeback in 2014. Brazil (EWZ, $47.43) is on a near straight line back up (it was in 80’s when Eike Battista was rich). While the PCLN’S and NFLX’S are taking 15-25% mark downs, the larger EM markets are staging a remarkable comeback. It will most likely continue. They are still in nowhere’s ville over the last 2 years when the US notched some giant returns.
I like the just OTM (out-of-the-money) call time spreads in the EEM with a longer duration. It has been a solid trade for most of the year and that market has had it smack down already. In some of the EM’s that are moving more briskly, I like the owning the ATM call with a protective put 3 to 6 months out. The big momentum stocks might be done sliding, but not ready for that quite yet. AG
Disclosure: Postions in EDC Follow Andrew on twitter @optionvol