The chart below is 5 day activity for the CBOE market volatility index.
It has been increasing as investors have become concerned about several issues that stand to have a significant impact on the market's performance.
The issues are many and include Black Friday sales, Euro zone debt problems, rating agency actions, continues poor economic data.
The post Black Friday bounce did not prove sustainable and seemed to be propelled by panic buying of stocks by underweight investors. Indeed the rally was impressive and the post rally decline appears to be fitful as reluctant investors do not want to get whipsawed.
5 day chart of VIX to SPY / volatility to market prices
Above we compare the VIX to the S&P 500. Looks like they are negatively correlated.
Yet today's chart shows less correlation.
Odd how these things work.
We see the VIX is a measure of investors appetite for risk.
It is not a perfect hedge for the market.
This is something we have written about a number of times.
Currently, investors have priced risk into the market as expressed by the high level of the VIX.
We wrote about this last month in our study on the level of the VIX and risk pricing.
Fears in the market place are real and as we move toward year end there is the ever present issue of "window dressing."
Is it possible that cash is the best thing to hold to impress investors?
We have been sitting on cash and struggling with the question of being market timers.
Clearly this is not what we want to be, but our concerns seem to be warranted and the price action has rewarded us over the past several weeks.
The last time we felt like this was several months ago.
As we often do, we priced up dozens of trades and were compelled to take positions as the rewards were too compelling.
At this point we are struggling to price up trades a few days prior to expri but will force ourselves to do so because that is our job.
Perhaps there will be opportunity.
No comments:
Post a Comment