The bad stars were all aligned today. Precious metals which had been treading water lost flotation. And that was while Treasury Yields were diving. Buying TIPS because yields will fall faster than inflation is not a good reason, but perhaps the only reason. The dollar gave ground so what gives? The PMs have been uber rational. Then Crypto resumed the slide to zero. All the hedges were being liquidated today.
The VIX is rather blase at 28, which means that the panic button is not being hit, and we can continue to slide further south from here without moving the fear gauge much. Recent highs are in the mid-30s. It might not be capitulation, but it could mark a turn. If you’re long the VXX you’re not really making it here.
This is the VIX vs the VXX which is a neutral ETF, you can go either way. It isn’t the best at tracking the VIX but it does represent more of a commodity driven market, with buyers and sellers. The VIX relative to the VXX falls when the market rallies. The VIX comes down faster. Here we are banging up against that imaginary ceiling at 1.30 while the 200dma is at parity. Just to fill out that thought, if the ratio did fall to one, the VXX is currently 23 and the 200 dma in the VIX is currently at 23.78. It’s already priced in, as it were.
The VIX is about 17% above it’s 200dma.
Looking at the SVXY there is a similar picture.
Taking the divergence into account, money has been moving higher in this Short Volatility ETF. Semi-ironically the rally in March did not attract that much buying action in the intermediate term OBV while the retail traders MFI did manage to make it go overbought the OBV money flow actually peaked before that high. OBV did continue higher while stocks have been losing ground since the peak in the rally around the first of April. Money in flows in January are at parity with the money flows currently which implies a value in the low 60’s and that would consistent with a VIC number below the 200dma, in the low 20s or high teens. A rally back to at least the 200dma seems possible which would imply some change in the downward descent of the stock market.
Today did look a bit more like capitulation in terms of participatin in all the sectors. Stocks don’t rally because they have too. We may be closer to the Fed throwing in the towel, a few more months of hawkish jawboning. As Jeff Snider points out the savings rate on the short term money markets are resisting the Feds levitating magic on EFFR. To the degree that the market forecasts these moves July may give us a few clues, a few subtle divergences.
The VIX which is not reflecting panic, could in turn take one last leap higher, and precious metals may drop hard and then bottom, the pressure in this group is building. 8% inflation on one side and rising yields and a strong dollar on the other. Assuming the dollar and bond yields relieve the pressure, a sharp move down might be better than a sharp move up.
The title is Stink Bids, bids below the market meant to take advantage of short terms drops in price.