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ES To Contextual FV Spread Continues To Diverge
The ES to Contextual Risk spread presented on Friday, at which point the ES was 15 rich to "underlying" fair value (first red circle from the left on the chart) continues to make new wides. After collapsing to 30% of the original spread level shortly after presenting, (first green circle) the spread returned to almost inception levels, and has since continued to blow out wider. At last check, ES appears to be nearly 25 points rich to fair value. Whether this means that correlation traders have taken an extended vacation, or that once again the purchasing capacity of those who "wag the dog" of actual underlying risk expression is impaired due to lack of actual capital, is unclear. It is also unclear how much wider the last 24 hours of irrational exuberance can send this spread before it reverts to fair levels. If the recent move in ES is predicated by self-fulfilling expectations of the Fed announcing QE3 on September 21, it is quite likely this may blow out to historic wides as the Bernanke Put, as presented here and which impacts primarily stocks in the early part of the easing regime, continues to be priced in over the next 3 weeks.
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can't wait for the compression
using a daily line chart on SPY we are right now at the top of the range 121ish in a unfurling mid-trend flag. Regardless of what it does intra-day I suspect we close on or below that 121 and perhaps the spread you speak of above rips us back down to the recent lows.
Careful, it's set to close the gap higher. Remember Friday. No volume melt up closed the gap up, instead of down.
There you go, it will resolve in A/H.
All in all, a good day tater. ( for a trader) that is.
We test the 50 first instead of the 20, shorts beware.
Beach time..
Stunning, market behaviour has defied any logic.
That is one big mother fracking elastic band someone is using in that sling shot.
Duck and cover girls and boys, duck and cover.
#FAIL? or is it @FAIL?
Holders of VXX, FAZ, TZA must be screaming bloody murder
Yea, blatant and illegal fraud can really piss people off. It's a wierd phenomenon.
I bought VXX, FAZ and TZA calls today Robo, sorry but I'll make a killing in the next 2-3 weeks!
Yikes, don't HOLD those! Trade them intraday!! Options, fine.
Just another buying opportunity on FAZ and a chance to reduce my cost basis. My strategy is as follows...WTBO!!! (Wait The Bastards Out) Both FAZ and TZA will go hyperbolic when banks and sovereigns are puking all over themselves. In a wipeout all that matters is quantity of shares and whether you got in a 40 or 100 will not matter when FAZ goes to the moon. You may have a few less shares than you may have if you bought at a lower price but, if I never have to work another day of my life and have $5M or if I never have to work another day in my life and have $8M it will make no difference to me. Total time freedom is total time freedom. And when everyone else is completely wiped out $1M will go much further.
I hear all the gold bugs going nuts about Fiat and worthless paper etc. When confidence fades, everyone will run to the bank to get worthless paper money to buy groceries as credit evaporates. Things may shift towards a gold backed currency over time but Gold will wipeout with everything else, although there may be a slight delay for nominal values to catch up with the real value of gold price in a deflated $. Flame away, I can take it;)
Namaste _/\_
I must say, i think you're right -- but I'm too chicken to do it until there is momentum. In the meantime, scalping TNA/TZA is awesome.
I unloaded my VXX and FAZ last monday. Put it all into TNA. I figured the Masters of Market Illusion would take the market sideways and UP to lure retail and casual investors back in. I must admit I was chewing my nails last thursday and friday. Luckily Irene didn't wash out the east coast for an excuse to intentionally tank the markets. I figure I will camp out on TNA for a bit. I am on vacation this week so I am gonna hawk the action and the moment I see anything I don't like - ABANDON SHIP! Maybe jump into DRV, perhaps down to $11 or so by that point or TZA and or FAZ. Who knows...
Disclosure: I doubt I will pick up VXX again. Barclays is the instutition behind VXX and VXZ. These are non-secured ETN instruments. Don't get caught holding the bag.
I agree. DO NOT BUY VXX and hold even overnight. It has a big problem with decay AND it is a Barclays etn which means it is only as reliable as Barclays solvency... I have no inside scoop or anything, just what I read and see, and the experience of having been a sucker and held vxx last year...
And, with all due respect, so what? They have control of the horizontal and the vertical, obviously. There isn't anything anyone can do about it and, for sure, the retail trader has absolutely no buisness touching any of this. I'll watch as the vultures pick the bones of the soon-to-be-dead cancer patient.
This is so ridiculous, at this point, that I have trouble even believing that it's even being done...daily.
So, banks and REITs to the moon today. There was no way they would let a day like today go by without gassing the hell out of them.
Brother Boiler,
Price action on key RIETs has looked sick...for weeks. I continue to believe they are suffering distribution which, at some point, will result in another leg down.
Advise selling them on the algo driven gap ups created by fund managers suffering from extreme lack of imagination.
My problem is that you have to believe that they will let them correct. That assumes they will somehow abandon the prop job. Considering what I see, over and over, and over and over....I think we are going to go for broke. I've never seen such absolute and blatant intervention and control. I see no reason why they wouldn't continue it or even increase it.
We are in no-mans-land now. There are no rules in Thunderdome. Enter at your own risk.
I like your thinking.. I just unhitched my long FAS calls against my long DRV. Will wait for TD's compression trade to close before I re-hedge my DRV via long FAS calls again.
Pricing in QE3 yet AGAIN wow how many times is that since January? QE3 priced in at least 4 times? LULZ.
Thinking it will be sometime tomorrow that the market realizes that a "baked in" QE3 rally is an oxymoron. Benny is not going to pull the trigger with DOW anywhere near 12k.
Correct. However, day to day, that does not mean that criminal syndicate Wall Street bankers won't lift bids into the absence of short sellers.
But I agree, and I do not think the rally has much in the way of legs, as these low volume melt up home runs have already been seen...and you can bet the Street will be much more anxious to sell into them this time.
This, not to mention...that an actual QE3 move will and subsequent rally will have a short half life...as folks come to grips with just how bad the US economy is. Nothing but poor data ahead, IMO. In this scenario, a reversal back to all time highs in gold would stop the usual S&P antics in its tracks.
Lose..........lose.
Keep it simple. In Philladelphia, Its worth fifty bucks
Egg-nog?
'QE3' the biggest carrot and stick ever devised, and has lasted for 8 months so far the promise that if only you ignore all terrible news, the Bernank will definitely come riding in and save the day.
Well all looks well to me, DOW just levitating upwards hundreds of points each day so wheres any need for a massive money drop to Wall St with the DOW within 2,000 points of all time highs?
Fair Value and ES are an Oxymoron.
Yea 'fair value' I have to chuckle, fair value to what? S&P which should be about 600?
Its monthend bonus time, volume is low...le't have a "rally"!
Who pays who in a zero volume melt up?
The September FOMC meeting is shaping up to be one of the biggest "buy the rumor, sell the news" events in a l-o-n-g time.
Unless like Jackson Hole, Bernank again punts and says 'No QE for you, come back and ask me in 6 months'!
Comedy. Bernanke will have backed himself into a corner once again trying to appease Wall Street. Market rises on anticipation of QE3... then Benny is forced to implement something or market crashes and it's his fault. What a dolt.
Comedy. Bernanke will have backed himself into a corner once again trying to appease Wall Street. Market rises on anticipation of QE3... then Benny is forced to implement something or market crashes and it's his fault. What a dolt.
thx for the update tyler
I've always said, if a retail or mom-and-pop investor sat for even one day inside a trading room, an HFT shop, or especially brokers and traders overseas in Asia, they would never, ever put another dollar in the market. It is all insider trading, market pushing, and algos/computers designed to skin you alive.
If you are a retail investor, seriously, just get out. You are hopelessly outmanned and outgunned. PS in Asia, when the traders talk, there's a reason they use off-the-shelf cells and IMs, instead of recorded office phones. Rampant.
Also, overseas traders laugh at America, they know we are finished, as the world owns us via our massive debt.
O/T McAfee is red flagging ZeroHedge.......What gives?
Yes and real corporations like Coke are trading down but 0% dividend garbage corporations like Lulu, Linked In, and Hansen are all trading up big.
We've got a lot of stocks hitting all time highs right now even after the August slip-up.
We really need to bring back mark to market instead of this fantasy system allowing corporations to hide massive losses. There is no way in hell Lulu is selling what they claim.
Tyler
I love this chart but do not have access to a bloomy
Can u post longer term chart on this may 6mos 1 yr
Thx
'Bout time to get some SDS on this trade.
Nah, hold off a day.
Well, time to close your longs now :-) Tomorrow going to be a negative day.
thnx Tyler for the update
you can tell it's all algos cause the TA actaully works. djia 11,529 & 11,480
Can anyone recommend a real-time (or even delayed) tool that will allow for charting of VXX-HYG-TLT as a portfolio against SPY? Finding good charting softward for looking at a basket is a problem for me at the moment . . . .
Thanks.
There are many choices out there, but TradeStation or Bloomberg do a pretty job.
bloomberg
Thanks for those suggestions. I was hoping for a low cost or free solution. Bloomberg seems pretty expensive. I trade through interactive brokers but can't figure out how to chart a basket of stocks through them.
Blah Blah Blah, Belch... Ahem, After closing out for a 5 pounder on the day and going to the gym/massage/dinner, I return to find another one of these WONDERFUL articles. I hope the spread closes overnight, because ill be there to catch it if it does. THANKS TD
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