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.
Longer-term...
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medium-term (which shows the exaggerated moves in Vol - and perhaps signals the stuck long vols into the EU Summit - that are now covering?)...
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and short-term...
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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...
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and just for clarity - look show cheasp VXX is to its intrinsic value!
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Charts: Bloomberg and Capital Context [10]