Mid-Day Report: The VIX Is Melting Up Along With The Market

March 13th, 2012
in Gary's blogging, midday post

The VIX is melting up along with the market - something is right here.

@expertstocktiming: "When the VIX goes down, the market should go up as it is doing ... BUT, Institutional Buying has been trending down since Feb. 13th, and Institutional Selling has been trending up since then.

The opposite stories that this data is telling is a story about something that is just not right.  Plain and simple ... something is very wrong with this picture. "


  • Gresham's Law applied to banks: "Bad bank funding drives out good." Cheap ECB loans have erased banks' immediate funding fears, but it has private investors pulling back as not only are bank assets now pledged as collateral to the central bank, but the ECB will stand as senior to other creditors. "A spiral of increased and institutionalized reliance on official credit," writes James Saft.
  • The jobs growth demonstrated by the latest NFP report is nothing to get excited about, says Joseph Stiglitz, not when there are still 23M American looking for full-time work. The U.S. needs GDP growth to stay above 4% for unemployment to fall significantly, he argues, and that's very unlikely when government budgets are being cut, and the vast majority of consumers have little in the way of savings.

Goldman's Take On Today's FOMC Statement: There Will Be Inflation

Yesterday we presented the view of JPM's Michael Feroli of what today's FOMC statement may say (one word: inflation). Here is what Goldman believes: "Today's FOMC statement should be relatively uneventful. The committee is likely to acknowledge the stronger labor market data and the upward pressure on headline inflation, which will undoubtedly be characterized as temporary. We also expect a softening of the phrase that “[s]trains in global financial markets continue to pose significant downside risks to the economic outlook,” although we do not expect it to disappear entirely. At the meeting, the staff is likely to give a presentation on additional easing options, followed by an extensive committee discussion. (This will not show up in the statement and will only become visible to the outside world when the FOMC minutes are released three weeks later.) We still think that the committee will announce further easing before the end of the second quarter, when Operation Twist concludes. However, our confidence in this view has fallen on net, partly because of the stronger labor market and slightly higher inflation data and partly because Chairman Bernanke chose not to repeat his very dovish comments from the January 25 FOMC press conference at the February 29 Monetary Policy Testimony." Remember: admitting inflation means no QE any time soon (and also admission that all the other central banks have succeeded in staving off deflation for a few more months courtesy of $2.5 trillion in excess liquidity injections in under 2 quarters).

I see a larger than normal correction coming, but in reality maybe not this month. I am a trader and can make a serious profit by waiting for the "corrections". I take my profits when I can and wait with cash in pocket for the inevitable pull-back. Sometimes I have to buy the dips and hope for a continued rise. The problem I have with this market is that it is being manipulated by DaBoyz and it is next to impossible to squeeze out a profit without taking serious capital risks doing so. The "top" may actually be a month away and what I would call now impossible heights. Briefly, a melting market is NOT a traders market. I like Rocco as in his next article he puts things into perspective.

What I Will Do When The Market Corrects Or Crashes by Rocco Pendola

"Nothing. It's pretty simple. Actually, I will do something, but it will not be all that much different from what I have been doing all along.

First off, corrections and crashes are normal. They naturally occur throughout the life cycle of all types of markets, particularly the stock market.  Second, there's really little reason to do much of anything unless one of the following scenarios apply to you:

  • You're close to retirement. You should already be re-balanced in such a way that you've mitigated the types of devastating losses that corrections and crashes can bring. It's sort of like finally getting around to making your will. If you need your cash in short order - or at least some of it - take steps to ensure that you don't get caught in a vulnerable spot when the market dives.
  • You need your money for some other reason. You've been investing in the types of instruments that will crater in a crash or correction, but the time has come where you need to send the kid to college, buy a house or place a futures bet on the Leafs to win the Stanley Cup next season.
  • You're an active trader. You probably have a good chunk of cash committed to relatively short-term situations. A correction or crash will derail your plans. Do whatever it is that you do to always be ready - get defensive, go short, increase cash - it's up to you, but you should always be prepared."

This is going to be an interesting report when it is released on Thursday.

@SA " Fed's doomsday stress test scenario. The Fed unveiled its doomsday scenario for the upcoming bank stress tests. Under the scenario, the 19 biggest U.S. banks would have to survive a world with 13% unemployment, a 50% drop in stocks, and a 21% tumble in housing prices. The Fed plans to release full results Thursday at 4:30 p.m. ET. "


And for you Elliot Wave Fans "aarc" at SA has a thought that sounds reasonable.

"Actually, we might just get another sizzle:

- http://bit.ly/xcT7Yv
XLF is a high probability i-ii-iii wavecount that is presumably has already completed the iv-th wave and is on the way for it's v-th wave rally.
With XLF as a friend performing within all parametric expectations to date; a v-th wave rally is practically or almost at hand. The only problem is whether the v-th will extend or not for XLF at least.
I am holding on to majority of my SSO and FAS Trend Trades (bought at Aug/Oct bottoms) in expectation of this i-ii-iii-iv-v rally. As in always, the upper channel resistance level is the take most (if not all) profits off the table."


@zerohedge: A Bit Of Humor Amid The Financial Insanity

Back to basics with some definitions:

DEFAULT, n. Semi-mythical celestial occurrence that passes by Earth every 76 years. 
I was worried for a second about that Greek default, but I realize there's nothing to see now and all is well.

FEDERAL RESERVE, n. A wholly owned subsidiary of Goldman Sachs.
The Federal Reserve voted to give a few more billion dollars to Wall Street.

US GOVERNMENT, n. Another wholly owned subsidiary of Goldman Sachs.
We seem to be running out of Goldman Sachs alumni here in the Treasury. No, wait, we've still got hundreds of 'em.

Read More Here.

FOMC Does Nothing, Notes Inflation Threat - Full Redline Comparison To January

Expectations going in were apparently of no material change likely with some increase in dissents. It seems the market is initially disappointed by the Fed's lack of "we'll print 'til we die" comments as Bloomberg notes:


Notably, economic "growth" has moved from modest to moderate, and inflation word count: 6.


@telegraph: "German newspaper Der Spiegel is reporting that Berlin failed to meet its own austerity goals in 2011. The newspaper states that "calculations made by the influential Cologne Institute for Economic Research indicate that only €4.7bn of the €11.2bn in austerity measures stipulated by the savings package actually took shape in 2011. The government is also falling behind on its targets for this year. Of the originally planned €19.1bn in savings, less than half has been implemented."


Alton is probably correct in that we will probably see a rise in the market during March and April and any correction will most likely be in May. So the big play I was hoping for this month might not get here until June and again in September.

Something Wicked This Way Comes For The Market by David Alton Clark "Let's see, we have a market at multi-year highs which has run up extremely fast over the last few months coupled with a slowdown in China and Europe. Top that off with prices at the pump nearing $5.00 and the "Sell in May and Go Away" phenomenon on the horizon and think you have a recipe for a correction. The saying three strikes and your out comes to mind for me."


Written by Gary

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