Yesterday morning, after reading the latest Gartman letter, we reported that in what may have been the worst possible news for vol longs, Gartman said he had become a "buyer of the VIX." As a reminder this is what he said:
NEW RECOMMENDATION: we are taking a “punt” on the short side of the equity market, but this time we shall do so by buying volatility; that is, we shall buy the VXX volatility index ETF listed on the NYSE and we shall do so upon receipt of this commentary and the market’s opening. We’ll have a stop in tomorrow’s TGL, but for now we do not wish to risk more than 5% on this trade… a rather large stop to be certain for our purposes in the past but we’ll tighten that up measurably over the course of the next day or two. This is unusual action on our part ahead of an FOMC meeting given the historical tendency of equities to rise after these meetings; but call it trader’s intuition or call it what you will we think a “one unit” punt is warranted and reasonable.
To which we responded:
We must admit that we pray that for once Gartman's "trader intuition" is correct because we tend to agree: we have gotten to a point where complacency is fully back courtesy of the central bankers, where the market is substantially overvalued as even Goldman admits, where the earnings picture continues to deteriorate (Q1 EPS is expected to plunge by over 8%) and where none of the world's problems have been "fixed" in the past few months yet where central banks have once again merely "kicked the can" with even more stimulus and more negative rates, while China's debt bubble and proposed "debt for equity" swaps are now beyond rational comprehension.
That said, we were resigned: "Then again, it is Gartman..."
That proved to be indeed sufficient, because not only was the equity "tendency to rise" after the FOMC confirmed as the S&P bounced yesterday and again today, but since Gartman's recommendation, the VIX has undergone a quick 15% freefall lower, and recently was trading below 14.
That said, we were eagerly looking for today's Gartman Letter to find out what the "stops" on his VIX long position are, just so we can know when it is safe to, well, go long VIX again and short the market. Here is the answer:
Short One Unit of the US stock market via the VIX: Yesterday… Wednesday, March 17th… we “punted” on the short side of the equity market, but this time doing so by buying volatility; that is, we bought the VXX volatility index ETF listed on the NYSE upon the market’s opening. We’re giving this a rather wide birth and are willing to allow the equity market to move 5% against us before exiting the trade and that means a move by the S&P to and through 2118, but we intend to move that stop down sharply in the next day or two.
In other words, Gartman has basically doomed the market to soar back to its all time highs. Sorry bears.