Discussion in 'Options' started by marketsurfer, Jun 27, 2008.
Here is a chart of the S&P 500, from '06 to present.
jj, on your chart, if u lookat the time,jan to jan that we were up above 1380 and then jan to june,1280 - 1380,we may spend another 6 months in this range,its a gap from pre jan 07
You will find that the market data feeds in raw data and CW indicators are dealing with a context that has not occured in the history of the financial industry.
This composite (all these degrees of freedom) Are being subjected to two major NEW influences: Economic dominance shifting and the end of an era that ranged over time from the mid 80's to JUN 06 (the quant era).
By not changing the degrees of freedom in the CW of the financial industry, the inefficiencies now coming to an end (not by virtue of cures but by virtue of NEW influences) no longer work as a constructive composite for what the financial indusrty is used to doing traditionally (gain profits from fees, service and sales commissions and profiting from dong deals (connecting those with needs to those with resourses).
It is typical since the advent of electronic support services to employ talent in running support services and not make financial policy with regard to the consequences of those services.
For example, read the NY times article preceeding the President's AM profferings Thursay AM. There is no "connect" by the article providers to the parts of the content nor is there no "connect" of the article providers with respect to the available solutions that any of the constituents could or will be obligated (to save their asses) invoke.
This is because the CW is still using unchanged measures of the NEW influences.
When mark to market failed and when the SEC did not enforse reporting requirements, there was arequirement to create and apply new measures (degrees of freedom) to characterize the status and rate of change of status and acceleration and deceleration of rate of changes.
For example, the securitization done to create fees commissions and profits from deals became a major causal factor (by my measurements in JUN 06) of the inception of market failure (deceleration to illiquidity of ill designed securities to create NEW market)
Econometrically this four fold domino effect (direct, indirect, induced, and substitution) lead to the peak (and inverted saucer) as the old CW measures decreased in money velocity from positive towards negative and stall at illiquidity (all of this is deceleration).
Look at the 6 months offset of the CW conventional degrees of freedom (Not from OCT 07 but from JAN 08 when the saucer was first detected. (See Bear Stearns and see hiring and firing practices among IB's specific divisions of operation (they domino'ed as well))
Aside from "investing" in long term durable stategies advantage systems, there are no effective NEW degrees of freedom to measure the two NEW influences.
What it is that you are not seeing primarily, nor are those who aren't being successful at policy shifting is the fundamental change going on.
I have to regard it about two years ahead of its happening because I have to keep a sector rotation model developed and in operation. As you see there is a total failure in this arena in the public record (reporters and analysis are incapable of asking those who are missing the boat the right questions).
Scarce resources, insufficient supply, and ill chosen dept shifting to achieve new debt markets all exponentially came together to first freeze the economic system meeting growth requirements and now the wave of consequences doubly drives a reaction to completely NARROW what is durable and what is going to be deeply revalued.
As a neutral biased trader, I will be making money at a higher money velocity than ever before in PVT, SCT and especially sector rotaion. There was a requirement to institute a Fundamental Analysis capability on platforms to do this.
Econometrically speaking, the substition effect will be where the greatest opportunity lays. To illustrate this, energy and food make ggod examples. Green will draw down, as a substitution, the value of many sectors even though the "old" degrees of freedom will focus on high demand and low supply (direct and indirect components). Ripples like using food stocks (meaning supplies) for energy are nice money velicity creator because rippling is always fun. This is the "vulture" territory as may be noticed occassionally.
I track diagonal drilling in breccia since the "halo effect" of mineral concentration is particularly important. Its timing compared to the resolution of "glow transportation" (they are coincident) will be when non carbon personal transportation will become de rigure.
Since I am 76, all of this is a "handoff" for me. for the financial industry, it is headed into some ratther deep and abiding consequences because of its size and lack of knowledge skills and application of work to achieve performance. My golas are to extract capital from your buddies at a pace never seen before and simply put the capital to work where it is most productive (Creating future long term added value).
You are not going to "get this" but I am putting it in the space just so that it is known that there is a whole NEW FA that has been nailed and it is fully integrated into the TA that is what drives the money velocity of trading PVT and SCT pool extraction AND the "investing" of sector rotation.
the financial industry allowed quants to create illiquidity and didd not regard the NEW infuences. Too bad. they get to have their capital extracted and used by those outside the industry to create solutions for the planet's problems. Good by, General Motors, assorted divisions of IB's and hedge funds.
The statistical volatility of the S&P 500 over the past month is 20.9 percent. Over two months its only 14.3 percent. So, VIX is still well above actual volatility. Unless you think the market is going to continue to see big moves like yesterday, VIX should fall more because yesterday doesn't really reflect what's been happening over the past couple of months.
Yeah you're probably right (which means we're still looking at some pretty good upside from here, right?).
I belive the markets are pretty much run by Fear & Greed (all of them) ... so if you can figure-out what are the proper fear and greed measurements, you can trade a market successfully, otherwise, you can't.
But however you measure them ... all markets come down to Fear & Greed (hence my interest in this thread).
Some of you guys need to be mindful of what the VIX is and isn't.
It's not a fear indicator. That's not to say sharply lower prices don't encourage investors/managers/traders to reach for put insurance-but use classical logic. It only rains when cloudy but you wouldn't EXPECT rain on every cloudy day.
The VIX is just the money line on the expected range moving forward. When SPX was coming off 1575 the chances of a 30% break were higher than the chances of a 30% break from 1275. Likewise against the current economic backdrop participants don't expect some bat out of hell retest of the ATH in the next year either.
A contributing factor to the low VIX is the "cheapness" of many component stocks. I'm not making any recommendation but to give you a thought on how some are thinking-let's say you love WMT at $50 but you're not going to chase it. Selling the Dec 50 calls at a buck and half is a great do to your way of thinking. You'd be getting WMT at around 13x forward earnings and no doubt some value guys are all over that. So this is a decent place for all kinds of premo selling and that's why the VIX is stable.
A "stable" VIX just translates into low volatility in the leveraged markets, right? It still has directional swings, both up and down.
The point of using these tools is that the derivative should not be traded by itself, but rather in conjunction with these tools that measure the underlying's price volatility and direction (in the case of the ES e-mini, the "underlying" that I am referring to are the stocks that makeup the S&P500, etc.).
It appears the point has become moot.
It's interesting that the vix futures have traded at a premium to the cash for some time now, and continue to do so.
I would suspect that will reverse before this down move is over. I would think about going long the S&P 500 when I see the cash vix trade at a healthy premium to the vix futures.
The Bernanke put is stronger than ever so selling vol is back in fashion. Has been since April.
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