Think back over the last 10 years - how different was your life in April 2006? While you may think your daily existence is largely the same (maybe the kids are older or you’re married now, but that about it…), consider what was actually different about your life in the spring of 2006:No iPhone;No Facebook (unless you were in college at the time); No Twitter; No Instagram; No Kim Kardashian; No Uber; No iPad.
Who’s afraid of the big bad bear? No one, it seems.
The CBOE SKEW Index just closed at its lowest level since October 2014 – but is tail risk in the stock market really that low?
The stock surge from February is at risk, warns BofAML's Stephen Suttmeier as a plethora of bearish divergences could cap further gains from here. 2044-2022 are key nearby S&P 500 support for April, but a loss of 2022 is required to break the last higher low from 3/24 and suggest a deeper decline for the S&P 500. The following 15 risk-factors - from VIX term structure steepness to Dow Theory Sell signals - all point to a retest of the recent 1810-1820 lows.
While breadth and seasonals are constructive, BofA's Stephen Suttmeier warns complacent put/call, VXV/VIX, and volume distribution are April risk factors.
As TVIX, the double-levered long VIX ETF unleashed in Nov 2010, decays to record low prices, an unusual (and almost unprecedented) event has occurred. Just as we saw in Gold ETFs, and Oil ETFs, TVIX Shares Outstanding have exploded by a stunning 225% in the last 4 weeks with the largest inflows (bearish bets) on record in the last week. The entire VIX complex is perturbed as the huge bearish TVIX flows contrast with the complacency of the steepest term structure since Nov 2014 (post Bullard-Bounce) and net speculative positioning at its shortest VIX (most bullish) in 2016.
"The oil-price rally that began in mid-February will almost certainly collapse. It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long."
In a market overtaken by central bankers, where fundamentals don't work (or work inversely because the worse the data, the greater the central bank stimulus and/or jawboning) traders are flying blind and hoping that at least technicals can provide some information. Courtesy of BofA's chief technician, Stephen Suttemier, below is a summary of what the latest charts say, and why he believes that the "overbought", "complacent" market has support around 2018-2002 and resistance is at 2075-2085.
The oil-price rally that began in mid-February will almost certainly collapse.
"I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall." As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.
"Dust off the systematic hedging strategies, and get re-acquainted with the concept of tail-risk," is the ominous conclusion from MKM Partners' Jim Strugger's latest report. Despite every effort from central banks to maintain a low-volatility environment, the magnitude of the August 2015 'shock' not just for U.S. equities but across asset classes, was great enough for Strugger to conclude that a transition into a high-volatility regime had begun. Given the length of the economic cycle, bull market, and the rise in financial stress globally, Strugger warns a transition to a high-vol regime leaves ultimate damage in the &P 500 averaging 53%.
What 3 pieces of information would you need to confidently call the 2016 end-of-year level on the S&P 500?
As global stock markets have soared in recent weeks, accelerating most recently after the dud of the G-20 meeting, gold has also rallied, strongly suggesting there is anything but confidence in this ramp.
Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.
While it may not be the traditional signal, CBOE's Russell Rhoads points out that the so-called 'fear index' VIX has just signalled the first Death Cross since its apocalyptic warning in November 2007. With VIX having plunged to 2016 lows, VIX volatility at post-QE3 lows (signalling extreme complacency), and VIX having decoupled once again from credit risk, the 'death cross' may be worth paying attention to once again as the ides of March strike.