No, I am not talking about the Nasdaq. I am talking about the new high plateau, the VIX. This is not normal. The VIX is usually mean reverting, and goes back to where it came from, or close to it, after it spikes during a big selloff. The only time the VIX maintained a high plateau after a big selloff is 2008. A VIX that is high (28.59 at Thursday's close) and refuses to go lower as the market goes higher. That didn't even happen in 2008. We are clearly in a different market environment than any of the other post waterfall declines we've seen over the last 10 years.
The VIX has refused to go under 26 even though the SPX has gone from 2192 to 3068 in less than 70 days. This is happening despite the fact that unlike the past 2 bear markets, in 2000-2002 and 2008-2009, you have a bunch of systematic options sellers who sell options for income and to get yield, because global bond yields are so low.
If things were back to normal, and we assume it is all uphill from here, like all the past waterfall declines in the last 10 years, then how do you explain the difference in VIX behavior?
Following are the post VIX spike charts (70 days after the VIX spike) for the last 7 VIX spikes since 2008.
If you look closely at the VIX charts, its clear this is nothing like the past selloffs. The only chart that a has much higher VIX 70 days after the spike are now and late 2008.
Just trading or watching the SPX on a daily basis and you can feel the intensity of the selloffs and the rallies. And yet you have very little fear and a lot of speculation going on in the options market, as the call volume is through the roof, much of it coming from small speculators.
It is one of the most irrational rallies that I have ever seen, no wonder a lot of the so-called smart money hedge fund managers who are right more often than wrong like Stan Druckenmiller or David Tepper are bearish on the market overvall, but oddly, they are still bullish on big tech.
Its so hard to explain the rallies that a lot of people go with the lazy and simple excuse that its because of the Fed. Sure, that can explain the beginning parts of the rally in March and April, when the Fed was buying enormous amounts of bonds, but its hard to say that the rally in May is because of the Fed. The Fed has drastically reduced their bond purchases since March.
This week, I think we've finally got a lot of investors saying "screw it, its going to keep going up, get me in.". You can see it in the huge outperformance on Tuesday and Wednesday in the Russell 2000, and the underperformance in the Nasdaq 100.
They usually chase the junkiest stocks late in the rally, as everything else has gone up huge, and only the junk is left which hasn't gone up much, and is therefore the most tempting to buy.
There is a huge pot of gold at the end of the rainbow for the shorts, but to get there won't be easy because the post bubble psychology is still pervasive. Buyers who have FOMO, and don't want to miss any more of the V rally, and don't want to regret missing out like all the other times the last 10 years. It has taken over 10 years for that bubble FOMO mentality to finally develop, and apparently it has not gone away after one big crash and biggest economic crisis since the Great Depression.
These are kamikaze investors with short memories, they have forgotten about 2000. They have bought into the new age thinking that MSFT, AMZN, GOOG, FB, and AAPL are invincible and will only get stronger because of the coronavirus, as it eliminates the competition. Although this logic is not as bad as the valuations based on eyeballs back in 2000, its quite a stretch, to try to say that these giant companies are immune to the effects of a huge economic contraction. The dotcom bubble was bigger and broader and crazier than this big 5 tech one, but the over the top and cringe worthy rationalizations for the unreal overvaluations are similar.
The strong rally off the March low has only emboldened these new era investors who come up with new metrics like high stock dividend yields vs bond yields to rationalize the high P/E and P/Book ratios. The warning signs are too numerous to think of right now, I am just rattling off a couple of them.
Anyway, this is a golden opportunity for short sellers, or those who have survived and are willing and still have enough conviction to put on size into this seemingly never ending bear market rally. I have added to shorts this week. Getting ready for bear. And I could care less about whatever Trump does or says on China, as that is completely irrelevant and meaningless for my thesis on why this sucker will eventually go lower.
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9 comments:
Why do i get the feeling that shorts are fighting against a rigged market backed by the fed.
Yeah im out of the short i seen enough. I was watching the nasdaq futures and the trump conference. The fed is all over this thing. There is a big ass bull in this market right. Im convinced we go higher and the nasdaq will reach at least the old high and spx going to 3150
It looks rigged, for sure. The volatility is still not going down much. Of course Trump is going to try to act tough on China but not doing anything that he thinks will upset the market. This market is vulnerable to a big drop, but probably won't happen until after June triple witching opex day.
June 19th?
Yeah June 19
Is it proper to think that the sell-off probably could begin after the triple witching day in June because many speculator betting for call or long want to achieve their goals?
It would be nice if you add some comments about what I said.
Many thx.
On triple witching day, a lot of options expire, and also a lot of futures hedges expire and aren't rolled over. Investors have less put protection and fewer downside hedges afterwards. So when they don't have as many puts, they are more likely to sell stocks .
Rigged rigged rigged
I don't know. I guess blacks are just good at bitching. Yeah they're not very determined to make everlasting change like you see with some minorities. They are more good at being very vocal very demonstrative. Yeah but for sure, affirmative action is hella strong at the educational, corporate, and government ranks. But in order to get there you have to go to college. To go to college you got to have nurturing parents, some resources, and not have the negative influences most inner city black youth have. Man a lot of them live in the ghetto man. Shit is real over there. Like real Ol Dawgs live over there. Not this fake one pretending to be from da hood and trading stocks. Lol
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