Market On Open, Tuesday 18 February
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Probably Nothing
by Alex King, CEO, Cestrian Capital Research, Inc
Here’s a really simple and boring chart which I find pretty useful as a touchstone of where things stand on any given day. This is the Vix index, a measure of demand for S&P500 puts with 30 days or more to expiry. You can open a full page version of this chart, here.
As a very rough rule of thumb, when the Vix is on the floor, markets are too convinced of their own bullishness which usually means there is a pothole ahead. And when the Vix moons it usually means that sellers are becoming intoxicated or perhaps depressed by their own worldview. Neither position sustains, neither boom nor bust. One always gives way to the other, in the end. Whilst no method is perfect, this Vix chart is pretty useful to me at the moment. When the Vix is at the lows I find that is a good time to wind on some downside protection - last week I did so in the form of some March-dated SPY and QQQ puts, sized so that if they go to zero it doesn’t keep me awake at night but if they moon the gains will be worth having. I also hedged two meaningful levered-long ETF positions, being TQQQ and SOXL, with their inverse pairs SQQQ and SOXS, to mitigate against any kind of long-weekend malarkey. This leaves me net long but with some protection against any near-term weakness. If the market moons I shall have to wrestle those hedges a little bit. I can live with that.
So, we'll see how this plays out in the next few days but at present it looks like this Vix on the floor moment may give rise to a selloff of sorts in equities. We shall see.
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Let’s get into it.
Short- And Medium-Term Market Analysis
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