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The "Decoupled" Chart That Traders Are Most Concerned About
While we have all seen how equity markets had decoupled from the 'reality' occurring in commodities, FX, and credit markets (as well as macro fundamentals), trading desks are anxiously eying the following 'decoupling' as this week's "pair trade."
VIX Inverse ETF signals all is not well in the S&P 500 rampapalooza...
Under the surface, things are notably 'broken' as VIX term structure remains inverted for over a week - in the face of the equity market's ramp v-bounce.
So Buy XIV, Sell S&P?
Charts: Bloomberg
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A chart than concerns traders? I thought a word from the Fed mattered immensely more.
Exactly. "People" still want to beleive in the (broken) system.
anybody seen this reported anywhere?
http://townhall.com/columnists/rachelalexander/2015/08/31/showdown-in-ja...
meh...
wilie coyote looking down ... where no support is.....
... and looking up he sees and anvil falling right behind him.
Maybe the arrow is point the wrong direction. (?)
Another 'glitch'?
Rather buy XIV, then short spoos, desperate central bank is desperate.
Great post! Actionable
Hello traders - don't get your knickers in a knot just yet. If you use 2011 as your trading guide, well then:
XIV went from 19 bucks to just under 5 after a VIX explosion of 4 SOLID months.
We are just a bit over one week into whatever this big of chaos will bring. But I suspect that the melt-down of a certain large Asian country might be bigger than the 2011 TEOTWAWKI in the Eurozone (before the Draghi "whatever it takes" now shortened to "Whatever" and "Don't get between me and that-there Can").
"So Buy XIV, Sell S&P?"
I'd say, sell everything and buy rural land you can grow food on and the tools and skills to work that land.
I upvoted, but better yet....sell everything and buy some physical pm's. Take balance of cash and remove at least a large chunk of it from the system and also invest in a good safe for physical pm's and cash.
You WILL find better deals on land in a year or two after this whole shitshow falls apart.
Whoa.. Not to much in that basket please. Farmland is a good investment, I have been blessed with it from 'the past', but it is illiquid as hell at times and one must have other sources of income if things get really ugly in the demand side of the market. Corn is doing last year's tumble, that is the usual if you know the product as long as I have. This market is not for the faint of heart and one must gamble with part, if not all the yield that is produced, as again, corn (maize) will be trucked to the terminals with a below production cost on the cash sale. Land is holding too well and the yield from cash lease has slid below 4% to 3.4% and below, as demand is still a heavy pressure as farmers still farm into the decreasing profitability area of the profitability curve, with bigger and bigger machinery. This bodes well for John Deere and Case, but will lead to a crash if they can not move the big machinery in the future and get the used machinery placed in an appropriate market (I'll bet on the Ukraine). CAT tried to get into this market and exited around 5 years ago. Notable also is the consumption of corn has a very artificial subsidy of automobile fuel to the rate of 40% of the crop yield most years. With advances in manufacturing and installing high pressure catalytic reactor for natural gas to ethane and the subsequent addition of similar reactors beyond this process, gasoline (auto petrol) can be readily produced below the cost of producing ethanol and the present economic pressures on the political machine can easily hit the farming sector with a near death blow (short term, but never the less fatal to the levered mega acreage farmer) and the two and three year legal definition of the 2008 Farm Act as in investing in the CME futures gives the banks a real edge if they become practiced in this market and a real legal challenge. One other note that one must realize is the foray into the farmland investment market by A.G. Edwards in the 1980's when farmland increased 60-80% and then crashed after a couple year high at around $4k/A. Bottom line, if you are not active and look to invest, do not over invest and realize that in 1936-1941 cash lease farm income was negligible and you have to be invested in other areas to weather this type of storm.
So goes the market in the expendables, but they lead in influence as it takes a well fed economy to be able to expand into other areas. The question that may be posed is what happens when the consumers are to well fed?
The XIV remains flat while the SPX catches up in the downward way.
I use to check gold and silver prices first thing in the morning. Silver was particularly telling, and I could discern a good deal of the days events by its overnight activity.
And it occurred to me that I haven't even looked this morning. At this point what difference does it make?
Just checked... it's down again... oh my...
Long VXX Short SPY ??
Yet they continue to buy the dip.
http://www.bloomberg.com/news/articles/2015-08-31/s-p-500-rout-has-room-...
S&P Rout Has Room to Go If Bond Spreads Have Anything to Say
by Lu Wang
August 31, 2015 — 12:00 AM EDTUpdated on August 31, 2015 — 10:41 AM EDT
- Similar credit stress led to two recessions, three corrections
- More losses may be in store for stocks if history is any guide
Credit markets foretold the selloff in U.S. equities. Should they also prove prescient in calling its extent, stock bulls have more to worry about.
In the three times when the extra yield bond investors demand over Treasuries has climbed as much as it has since May, the Standard & Poor’s 500 Index has lost an average of 18 percent, according to data compiled by Bloomberg since 1996 that excludes recession years. At its lowest level last week, the benchmark gauge for American equities was down 12 percent from its May peak.
Although the relationship doesn’t always hold, equity investors have been glued to the credit market after its signals foreshadowed the worst stretch for American stocks since the turmoil in 2011 when the U.S. lost its AAA rating at S&P. The widening in bond spreads that began as equities sat at records is now viewed as something that should have been heeded, a sign that a surging dollar and turmoil in China would one day take a toll in the U.S.
“The credit widening has been a fear signal. The market took it and finally began to sell off,” said Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, which manages $250 billion. “There are nervous investors out there who have ridden the market for five years and have been skeptical. Now that they’re seeing this, they may be selling.”
Credit spreads continued to widen in the runup to this month’s stock rout, with the extra yield over Treasuries climbing 12 basis points to 170 since the start of August. Equity investors gave in on Aug. 18, pushing the S&P 500 into a descent that lopped more than $2 trillion of its value at the lowest level.
The benchmark index fell 0.5 percent Monday at 10:41 a.m. in New York, extending its August decline to 6.2 percent, on course for the worst month since 2012.
Now the bull market that at one point lifted stock prices more than 200 percent since 2009 is facing one of its biggest challenges to date. Into concerns about stagnant profit growth and stretched valuations has crashed China, pulling the U.S. market into its first 10 percent correction in almost four years.
“You have slow growth in the global economy, and you’ve got real issues in China and the commodity markets,” said Martin Sass, founder of New York-based M.D. Sass, which oversees $7.5 billion. “It’s a caution sign that the equity market had ignored the widening spreads. And then when they woke up to that, investors got very emotional.”
Yield premiums on investment-grade debt have widened by 32 basis points over the past three months, according to Bank of America Merrill Lynch index data. Since 1996, there have been five occasions when credit spreads showed similar expansions. Two of them preceded recessions in 2001 and 2007 when stocks went on to drop 50 percent or more.
In the other three instances, the S&P 500 fell at least 16 percent while the economy continued to grow. The latest was in August 2011, when the S&P 500 was mired in a 19 percent retreat that almost ended the bull market.
Assuming the U.S. economy will be able to avoid a recession this year, as predicted by economists surveyed by Bloomberg, and stocks fall by the average magnitude to reflect similar credit stress in the past, the S&P 500 would hit 1,742, a 18 percent decline from its all-time high reached in May. That level, last seen in February 2014, represents a 12 percent drop from its Friday close.
This month’s selloff has come as reports show the U.S. economy expanding. Gross domestic product rose at a 3.7 percent annualized rate in the second quarter, more than previously forecast, the Commerce Department said Thursday. Data last week also showed consumer spending and personal income climbed and new home sales rebounded.