The Elephant In The Room Continues Sitting On The VIX, Sends It To 2 Month Lows

Tyler Durden's picture


As S&P 500 e-mini futures (ES) slumped this morning as Bernanke appeared to disappoint (and the rest of the risk-on asset classes all tumbled with it), we saw heavy volume and relatively large average trade size. Once the edge of glory from Friday at 1340 was hit, it seemed the magic Potter-esque fairy was back at play. Immediately, VIX was hammered from 17.5% to 16.1% - its lowest in almost 3 months as the bottomless pit of capital that feels comfortable selling vol (or perhaps using a levered approach to ramping stocks) drive ES back up an impressive 14 points on low volume and low average trade size. Yes, we crossed VWAP, yes we crossed unch, and now we are testing highs back above the 50DMA. It seems VIX once again is the ramping tool - and now is significantly dislocated from any equity or credit sense of reality. We presume that OPEX will clean up some of this exuberance but for now, it is the tail wagging everything's dog.



medium-term (which shows the exaggerated moves in Vol - and perhaps signals the stuck long vols into the EU Summit - that are now covering?)...

and short-term...

and thanks to VXX - which led our SPY fair-value model out of the quagmire, SPY is now back at reasonablevalue to HYG/TLT/VXX. Note that ES is notably rich again relative to risk assets now though...

and just for clarity - look show cheasp VXX is to its intrinsic value!

Charts: Bloomberg and Capital Context

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Tue, 07/17/2012 - 12:23 | 2624601 The Monkey
The Monkey's picture

Short squeeze to continue. AAPL right up.

Tue, 07/17/2012 - 12:35 | 2624645 slaughterer
slaughterer's picture

One symbol: SVXY


Tue, 07/17/2012 - 12:38 | 2624661 HyperLazy
HyperLazy's picture

XIV right along with it

Tue, 07/17/2012 - 13:23 | 2624861 Precious
Precious's picture

No worries.  QE8.

Tue, 07/17/2012 - 12:23 | 2624606 Debtonation
Debtonation's picture

One only needs to think the word stimulus and VIX will fall on its own.

Tue, 07/17/2012 - 12:24 | 2624608 HelluvaEngineer
HelluvaEngineer's picture

I mean, what could possibly go wrong?  Central banks across the world are setting the price of everything.

Tue, 07/17/2012 - 12:31 | 2624633 LawsofPhysics
LawsofPhysics's picture

Has been done before throughout history, every single time a war has erupted.  The wars are always funded by the same powers that were doing the "price fixing", but I am sure this time is different.

Tue, 07/17/2012 - 21:56 | 2626676 JeffB
JeffB's picture

We're already in a couple of "peace keeping operations", and are antagonizing a couple of more countries daring them to retaliate.

A lack of war would be a dramatic change.

So would all out war with a lot of countries involved.

Too bad we don't get to vote on such things.

Heck, even allowing our Congress to vote on them as per our Constitution would be a nice change of pace.

Tue, 07/17/2012 - 14:05 | 2625031 HardAssets
HardAssets's picture

"I mean, what could possibly go wrong? Central banks across the world are setting the price of everything."

Naw that can't be right. - - That sounds like the kinda stuff they did back in the old Soviet Union.

Can it be ?  Naw . . .

Tue, 07/17/2012 - 12:25 | 2624612 Gubbmint Cheese
Gubbmint Cheese's picture

the Asch Paradigm - pressuring investors to believe everything is ducky.


Tue, 07/17/2012 - 14:06 | 2625036 HardAssets
HardAssets's picture

'ducky' or 'fucky' ?

Tue, 07/17/2012 - 22:52 | 2626789 JeffB
JeffB's picture

Thanks for that name. I googled the Asch Paradigm/Experiment & (re?)learned something new. I also saw a couple of videos of other interesting psychology experiments that showed how in certain situations people can act in immoral or seemingly absurd ways. Most would never believe others would act in such a way, much less themselves.

Such as the Stanford Prison Experiment

The Bystander Effect

and was reminded of The Milgram Experiment



Tue, 07/17/2012 - 12:27 | 2624616 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Is anyone else focussing on this? Any research reports?

Would love to see more.

Seems counter intuitive and is disturbing. Vol has come way down on treasuries, currencies, you name it.

All your volatility are belong to us?

Tue, 07/17/2012 - 12:48 | 2624689 Howdan
Howdan's picture

I echo your sentiments..... So much for my long VIX position which I've just closed out at a loss.

Why is there so little information / reports about VIX?

Did as much research as I could but maybe it's like everyone seems to be saying here in that the "market" (and I use that term loosely) just makes no sense anymore and everything has become dislocated from each other with most correlations pretty much dead in the water now.

Tue, 07/17/2012 - 12:54 | 2624721 slaughterer
slaughterer's picture

Rule #1 during earnings season: only buy VIX after AAPL earnings. 

Tue, 07/17/2012 - 12:29 | 2624621 Hedgetard55
Hedgetard55's picture

Fucking criminals.

Tue, 07/17/2012 - 12:29 | 2624625 LawsofPhysics
LawsofPhysics's picture

Ah, if only technicals mattered.  < sigh >  Wake me when the trading volume jumps.

Tue, 07/17/2012 - 12:54 | 2624723 GoinFawr
GoinFawr's picture

Well this is rare, but I'm not so sure that I completely agree with you on this one Law: technically the vix got a fairly obvious double-tap(sic) this mawnin'.

Tue, 07/17/2012 - 13:09 | 2624797 LawsofPhysics
LawsofPhysics's picture

That is a fair point, but if you are going to make a living following such moves then I am reminded of a saying involving pennies and a steamroller.

Tue, 07/17/2012 - 13:47 | 2624960 GoinFawr
GoinFawr's picture

"Too clever by half" works too.

Tue, 07/17/2012 - 12:30 | 2624628 butchee
butchee's picture

VIX no longer indicates anything......another totally fixed/suppressed/irrelevant market.

Tue, 07/17/2012 - 12:35 | 2624654 Fecklesslackey
Fecklesslackey's picture

Damn ... and I just bought VXX

Tue, 07/17/2012 - 12:40 | 2624665 Desert Irish
Desert Irish's picture

The pros know the fix is in by the way of the Bernake Put - volatility does not matter anymore when there's a large safety net in place.

Tue, 07/17/2012 - 14:09 | 2625049 HardAssets
HardAssets's picture

Except PM volatility. They got them moving up and down like a freakin' roller coaster.

Tue, 07/17/2012 - 12:45 | 2624680 Howdan
Howdan's picture

Agreed! I've just been crushed on my long VIX position - was shocked to see it plunge 5% in the past 2 hours..... What a joke!

Why is vol getting cheaper??? Makes no sense.

I thought buying VIX @ 17 would have been a good call but obviously not....


Tue, 07/17/2012 - 13:00 | 2624759 lucidwanderer
lucidwanderer's picture

absolutely!  as soon as people recognize the importance of the indicator it's suppressed.  the internet and ZH have to ride the crest of the new before it can be absorbed into the matrix of the conscious.

Tue, 07/17/2012 - 14:23 | 2625083 HarryM
HarryM's picture

Lately UVXY has been dropping as VIX goes up 

Is there anything left that works the way it should?


Tue, 07/17/2012 - 12:31 | 2624629 sun tzu
sun tzu's picture

Yet they keep telling us that the free market has failed. 

Tue, 07/17/2012 - 12:58 | 2624742 lucidwanderer
lucidwanderer's picture

free markets work....that's not the situation here.

Tue, 07/17/2012 - 12:31 | 2624631 falak pema
falak pema's picture

To add insult to injury the BI published a report saying socialist Canada is richer than the USA on a per capita basis for the first time in history.

Canadians Are Richer Than Americans For The First Time Ever, Thanks To Socialism - Business Insider

Tue, 07/17/2012 - 12:35 | 2624651 sabra1
sabra1's picture

well duh! look at our real estate! there is a floor at the present prices! it'll never drop more than 1%!

Tue, 07/17/2012 - 12:36 | 2624656 Village Smithy
Village Smithy's picture

Only because they haven't had their housing market crash...yet.

Tue, 07/17/2012 - 13:11 | 2624810 GoinFawr
GoinFawr's picture

Se11 Vanc0uver, buy F0rt Mac?

Tue, 07/17/2012 - 12:32 | 2624637 Meesohaawnee
Meesohaawnee's picture

Ill say it for the hundredth time. How one single man can destroy an entire global equity market is beyond my comprehension as a human being. Wall Street constantly whining that retail is gone and yet this is the biggest turnoff ever. Nobody will ever come back when you realize how grossly manipulated this is. Im so sick of hearing about “stimulus” of which its anything but. If the patient cant survive on its crack fix, then let it die. Anyone who ponders a QE as being a positive for the group as a whole is a compete moron! 3.5 years of this and you got nothing except big bonuses and fat stock options for corporate insiders.

Tue, 07/17/2012 - 12:33 | 2624643 HelluvaEngineer
HelluvaEngineer's picture



My God:

While he didn't give any definitive hints of further easing, it's likely that if the Fed doesn't act at the next two meetings, stocks will turn down, said Peter Boockvar, equity strategist at Miller Tabak. "Either way, while Ben didn't tip his hand, we know what's in the cards," he said.

Tue, 07/17/2012 - 12:59 | 2624738 A Man without Q...
A Man without Qualities's picture

via Twitter -  : How can smart Fed followers hear Bernanke downgrade the economy and not simultaneously hear an increased chance for QE?


It's simply incredible how the pump monkeys work.  If he says things are getting worse, then buy because "it's gonna happen"; if he explicitly does not mention QE3 as one of the easing options, buy because he's bluffing.

The basic argument is that like a spoilt child keeps screaming until his mom buys him an icecream, Bernanke is going to launch QE3 because the brats demand it.

My take was today he came very close to explicitly ruling out further outright Treasury purchases, because he doesn't think the upsides suffice to cancel out the downsides.  However, the pump monkeys don't want to hear it, so they are taking the idiot's option. 

Tue, 07/17/2012 - 12:34 | 2624646 Fecklesslackey
Fecklesslackey's picture

Alternate Reality Ramp ... ES hits high of day. 

Tue, 07/17/2012 - 12:45 | 2624664 HyperLazy
HyperLazy's picture

What a wonderous 17 point drop and climb within a couple hours. Totally normal apparently.

Edit: Hey PPT - just ramp up the /ES to over 9000 today and call it a week already.

Tue, 07/17/2012 - 12:35 | 2624648 Falkor
Falkor's picture

What a world!

Tue, 07/17/2012 - 12:36 | 2624655 firstdivision
firstdivision's picture


Tue, 07/17/2012 - 12:40 | 2624668 SmoothCoolSmoke
SmoothCoolSmoke's picture

The BTFD dogs....conditioned again.

Tue, 07/17/2012 - 12:45 | 2624682 Everybodys All ...
Everybodys All American's picture

The VIX is and has clearly been manipulated just like LIBOR. The VIX btw is what many derivative prices are based upon. Now you know the reason.

Tue, 07/17/2012 - 12:45 | 2624683 orangegeek
orangegeek's picture

Another leg up in the SP500 which should complete wave 2 - we are seeing that unfold today.  Wave 2's take their time and volume remains relatively low - another sign of weakness ahead.

Tue, 07/17/2012 - 12:48 | 2624684 Deep79
Deep79's picture

Don't worry about short term noise.

We all know the end result, market is trying to shake as many shorts as it can and sucker in some longs in the process before it rips down. 

Market is their to hurt the most amount of people, if you believe we are ina recovory, by all means go long, but most know we are in BIG trouble. 

Stay patient, they csnt keep this sucker up too much longer.

Tue, 07/17/2012 - 12:47 | 2624685 Squid Vicious
Squid Vicious's picture

Maybe Barton Biggs last words were "short everything"?

Tue, 07/17/2012 - 12:59 | 2624749 Fecklesslackey
Fecklesslackey's picture

Without copper coming back, this ramp rally is history. We may even see 'The Grand Reversal' today

Tue, 07/17/2012 - 13:09 | 2624756 sitenine
sitenine's picture

Here it comes - like a freight train without breaks. The warning signs have been in your face for years now. Trite sayings like ,"don't fight the Fed" or "green shoots", have lost all meaning. This morning I saw two stories recommending that we stop paying attention to news altogether (MW and Abnormal Returns). We are being instructed to ignore reality and 'invest' anyway. Amazing, to say the least. The message I get from all of this is that, yeah, things are fucked, but if you just bury your head in the sand everything will be OK. I take issue with that sentiment! THINGS ARE NOT OK! We are at peak ponzi, and the time to engineer a new system is NOW. There is a lot of talk about how to protect ourselves individually (PM, land, guns, etc.), but NO talk whatsoever about how to move forward as a species. I am not using hyperbole when I tell you that our very existence is at stake! VXX is just one more outmoded tool of the ancient ponzi financial scam machine. The real 'fear index' is nothing more than a guess as to whether or not the central banks are going to print or whether or not European countries can find additional sources of credit. CREDIT?! FFS! That's exactly what started this shitstorm in the first place. So, what's the plan? Are we going to suffer the collapse of this ponzi system, or are we going to get to work on creating something better? The choice is ours.

Tue, 07/17/2012 - 16:16 | 2625556 brianshell
brianshell's picture

This money is backed by the full faith and credit of the central bank printing cartel.

The mandate of the cartel is to keep the faith.

The public is now using (fill in the blank) to gauge the health of the economy.

Therefore the cartel is compelled to manipulate the gauge of the month, thus assuring the public that all is well.

The list of gauges; UST rates, the stock market, the gold market, the silver market, the VIX, the prime rate, LIBOR, etc.

Now add the politicians mandate. Its the same.

Manipulate the job numbers, the debt, GDP, PPT, the list is long as a witches dream.


Conclusion, if you see smoke, if you see mirrors, it is either PT Barnum or the world banking and political cartel.


PS dont forget the media

Tue, 07/17/2012 - 16:04 | 2625616 ATG
ATG's picture

VIX targeting 11.

SHVY targeting 64...

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