The equity market has been trading in a rather peculiar mood, still dominated by news primarily out of Greece. Other risk measures on the other hand have shown escalating concerns of risk. Credit and volatiliy are currently implying something different to the equities market. Let’s see who will get the upper hand. Meanwhile some observations from last Friday’s action.
On Friday the SPX was unchanged at the lows over the course of five hours, yet TVIX spiked 15.5% in that period, a huge intraday deviation from the
normal negative correlation. Last week we saw app 22% jump in the VIX, while the SPX remained flat. The week of September 15, 2008, when Lehman
filed for bankruptcy the Vix gained app 22% in a week (close to close, although it traded much higher intra week)) and the S&P was practically flat. Is something about to happen? Observations with charts below;
SPX past Friday. Market was trading pretty much unchanged (after the initial drop).
Meanwhile the TVIX (ultrashort VIX) gained some 15%. This is rather odd behaviour given the SPX “non move”.
SPX last week, practically flat.
But the VIX gained 22%.
The week Lehman went bust, SPX was actually pretty much flat.
During that week the VIX gained 22%…
As we have argued, (credit) and vol are both implying a somewhat less “risk on” mood than the equity market currently implies. Maybe, after all, it is time to load up on some shorts via leveraged ETF's?