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Strategist Warns SKEW "Is Flashing A Big Warning Signal For Stocks"

Tyler Durden's picture


As stocks have pushed to new record highs in recent weeks, and VIX has dropped accordingly, the cost of protecting desperate asset managers from a far bigger collapse in prices has been soaring. We first noted the record high price of SKEW - a measure of market fear of a big drop in prices - a month ago, but for the first time in history, prices have remained elevated for a considerable period. As Bloomberg reports, the SKEW "is flashing a big warning signal for equity markets right now,” Kevin Cook, a senior stock strategist at
Zacks Investment Research Inc. in Chicago, wrote, adding that, "big players are quietly and eagerly buying up put protection while they hang onto their stocks." This institutional nervousness is occurring as retail dives and AAII Bulls surge back above 60% of investors.


This is a record high and record long period for SKEW to be elevated...


In the past four weeks, the SKEW has exceeded 140 three times: on June 20, July 2 and July 3. Only four other earlier readings, in June 1990, October 1998, March 2006 and December 2013, surpassed this threshold since calculations started in 1990. The chart shows all but the earliest occurrence, which happened four weeks before the S&P 500 peaked for the year.


Which seems to have been triggered at the FOMC meeting (when Fed confirmed QE will end in Oct)


Source: Bloomberg

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Tue, 07/15/2014 - 15:42 | 4960224 Say What Again
Say What Again's picture

I've been watching SKEW.  Unfortunately, SKEW (and VIX) can be BEARish for MANY months before anything happens.

Tue, 07/15/2014 - 15:52 | 4960272 Pladizow
Pladizow's picture

Skew it on the barbi

Tue, 07/15/2014 - 15:59 | 4960301 Mr Pink
Mr Pink's picture

Ahh yes, the daily warning signal.....zzzzzzzzzzzzzz

Tue, 07/15/2014 - 16:35 | 4960433 RevRex
RevRex's picture

How many times before did we have ZIRP, QE, plus Belgian Bond Buying?

Tue, 07/15/2014 - 20:36 | 4961112 Remington IV
Remington IV's picture

and Bitcoins ... where are my Bitcoins ???

Tue, 07/15/2014 - 15:47 | 4960246 buzzsaw99
buzzsaw99's picture

how is it ever going to crash if everyone buys bullshit protection instead of selling their stock holdings?

Tue, 07/15/2014 - 15:54 | 4960273 Say What Again
Say What Again's picture

Most of the significant market selloffs are the result Margin-Calls.  When many market participants are highly leveraged on the Long-Side, and the market has enough of minor sell-off, the leveraged participants get margin calls.  Anyone that has been trading knows that when you get a margin call from hell, you sell what you can -- not what caused the margin call.  This phenomenon then starts a chain reaction, and you know the rest of the story.

Tue, 07/15/2014 - 15:56 | 4960291 Dr. Richard Head
Dr. Richard Head's picture

Crowded movie theater on fire meet two exit doors. 


Tue, 07/15/2014 - 16:01 | 4960311 buzzsaw99
buzzsaw99's picture

how are there going to be margin calls if it is zirp 4evah? these are rhetorical questions btw.

Tue, 07/15/2014 - 16:10 | 4960342 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Banks have unlimited credit with the Fed. Most individual traders don't. Margin call is greater than margin limit. Hit the sell button.

Tue, 07/15/2014 - 16:21 | 4960345 Say What Again
Say What Again's picture

I know that your question was rhetorical, but interest rates are a minor influence in the equations used to calculate daily maintenance requirements for margin accounts.  Even if IR is ZERO, you will get a margin call if the equity in you account dips below a given threshold. 


If you are SHORT XYZ, and XYZ starts a huge rally, the ratio of your AccountBalance/CostOfPositions will go against you, and you will get a Margin Call.

If you are Leveraged-LONG XYZ, and XYZ starts a huge sell-off, the ratio of your AccountBalance/CostOfPositions will go against you, and you will get a Margin Call.

Regardless if you are LONG or SHORT, the IR will eat away at your "Cash Balance" as a function of time.


Tue, 07/15/2014 - 16:34 | 4960431 HeavydutyMexica...
HeavydutyMexicanOfTheNorthernKingdom's picture

WTF?! Have I gone back in time to 2009 ZH when the majority of comments were worth reading? 

Tue, 07/15/2014 - 17:57 | 4960641 TheRedScourge
TheRedScourge's picture

I guess this is why they keep smashing VIX - low volatility means no big swings which means no margin calls?


I suppose it will still fall apart though, via the ZIRP/NIRP induced "reach for yield" encouraging investors to take even more leverage on even more risky things.

Tue, 07/15/2014 - 15:47 | 4960250 JustObserving
JustObserving's picture

These markets are completely manipulated so technical indicators that work in free, fair markets do not apply here. Only Kevin Henry matters.

Tue, 07/15/2014 - 16:31 | 4960261 deflator
deflator's picture

Chart pattern for VIX looks like a traders wet dream. Is it very predictable looking or not?


 I'm thinking, just looking at the last 5 months VIX chart that you could buy anything below 10.5 and sell anything over 11.5 and make 20% in the next month on just 4 trades. 

Tue, 07/15/2014 - 15:53 | 4960274 gdiamond22
gdiamond22's picture

Yes, a warning signal to buy.

Tue, 07/15/2014 - 15:57 | 4960288 NOTaREALmerican
NOTaREALmerican's picture

Too hell with SKEW, I want my VIX!!!    You'd think with Global Death Cross blaring from the speakers of the Hindenburg Omen we'd be able to find the goddamn thing but I haven't seen the Hindenburg Omen for months now!

Tue, 07/15/2014 - 16:12 | 4960349 potato
potato's picture

The market is flashing a big GREEN warning signal that the SKEW doesn't matter anymore!

Tue, 07/15/2014 - 16:16 | 4960371 Bernoulli
Bernoulli's picture

eagerly buying up put protection

WTF? Does anybody believe they can sell their put options before expiry just like that when the shit hits the 360° rotary fan?

Who would buy them when the markets close for a week or so? Not so sure about that strategy...

If you own a lot of stocks, sell all of the stocks and buy 50% physical gold and keep 50% in cash sounds like a much better "protection" to me.

But maybe I just don't understand the "put protection"...

Tue, 07/15/2014 - 16:23 | 4960386 deflator
deflator's picture

But maybe I just don't understand the "put protection"...


 Insurance against your levered 500-1(I'll die and burn in hell before I sell) long positions.

Tue, 07/15/2014 - 16:23 | 4960395 SheepDog-One
SheepDog-One's picture

So what you're sayin is stocks could possibly lose maybe 1% and then by the next day regain it back plus some? Big deal.

Tue, 07/15/2014 - 19:10 | 4960873 macambaman
macambaman's picture

Skewed SKEW will skewer stawks.

Tue, 07/15/2014 - 19:25 | 4960925 razorthin
razorthin's picture

So something's aSKEW?  No shit.

Tue, 07/15/2014 - 19:59 | 4961003 mattgallis
mattgallis's picture

ZH correct:pure-fear-tactic-to-sell-shitbag-ads ratio is probably a sexy 1/2% now.

Call me when the correction actually happens, in the meantime i'll be buying gold.


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