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BofAML Warns VIX-Inversion "Does Not Mean The S&P Correction Is Over"

Submitted by Tyler Durden on 10/09/2013 17:56 -0400

As we noted last night, yesterday's move in US equity markets showed signs of investor panic and capitulation.

BofAML points out that the inversion of the VIX to levels that have coincided with market lows for much of this year, the significant underperformance of recent outperformers (the NASDAQ Comp fell 2% and the Russell 2000 fell 1.72% vs an S&P500 decline of 1.23%), and pop in the ARMS Index all point to signs of capitulation. While this is encouraging from a technical perspective, as it says we are one step closer to completing the multi-week correction, they warn - it does not mean the correction is finished.

Price action indicates that we should see another push lower towards the Aug 27 low at 1627 (1618.25 in ESZ3), Potentially, the 200d (1599), before a more material base develops. This next leg lower should be a less dramatic and result in bullish momentum divergences that often accompany a base and turn higher. Back above 1662.75 in ESZ3 turns us from bearish neutral, while bulls need to overcome 1679.50/1687.15 (ESZ3 and CASH, respectively) to gain control.

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Wed, 10/09/2013 - 18:00 | 4039430 TaperProof

"BofA tells everyone to sell after getting short massively"

Wed, 10/09/2013 - 18:01 | 4039433 Frozen IcQb

I Love the Smell of Vix in the Morning, Smells like, Victory.

Wed, 10/09/2013 - 18:20 | 4039476 TheLooza

Vendi Vidi VIXi

Wed, 10/09/2013 - 18:25 | 4039485 max2205

Who in the fuck listens to ML anymore

Wed, 10/09/2013 - 18:41 | 4039538 UP Forester

I made the mistake of listening to CNBS for a bit today.

They said "VIX being in backwardation means it's at or close to the bottom."

I thought to myself, "so, just like gold?"

Then I thought, "STFU self, that makes sense"

Wed, 10/09/2013 - 18:08 | 4039449 NOTaREALmerican

If it doesn't go down nobody will be able to BTFD.

Wed, 10/09/2013 - 18:27 | 4039487 Seasmoke

But they will be able to BTFATH. .

Wed, 10/09/2013 - 18:09 | 4039450 Iam Yue2

The move from markets being liquidity driven to growth driven will not be a smooth transition, and we must anticipate that there will be extreme volatility going forward. The problem for the concensus (read tame and compliant media) is that Yellen is not a markets person; she does not understand markets; she cannot talk to markets, she cannot read markets. The markets will have her for dinner.

Wed, 10/09/2013 - 18:17 | 4039465 NoDebt

August/Sept 2011 was volatility. This is the most orderly, well managed pull-back I have ever seen since the last 2 earlier this year.

Wed, 10/09/2013 - 18:22 | 4039482 disabledvet

we need to have the correction first. that's at least ten percent or more (i would argue at least twenty.) so far the correction has been in the debt markets and "thinly traded instruments." that says to me the premium still remains in "liquidity" generation and "pro growth models."

Wed, 10/09/2013 - 19:03 | 4039607 FieldingMellish

VIX curve slope is under 0.4 so remain long VIX (VXX) for now.

Wed, 10/09/2013 - 19:15 | 4039638 razorthin

Next push lower "less dramatic"? Are you fucking kidding? It doesn't feel like there's been any decline yet.

Wed, 10/09/2013 - 19:43 | 4039707 Awakened Sheeple

Eh, short vix until Friday (With a tight fucking stop). Good luck all.

Wed, 10/09/2013 - 20:05 | 4039765 Solarman

I am with you. i also shorted gold

Wed, 10/09/2013 - 20:25 | 4039803 Awakened Sheeple

Today was a liquidation trade. Everything got whacked. We might be a day early, but I don't think we crash without one last P&D.

BofAML Warns VIX-Inversion "Does Not Mean The S&P Correction Is Over"

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