Tags: vix | investors | fed | rates

Seaburg and Stockton Think Volatility Fever Has Broken

Seaburg and Stockton Think Volatility Fever Has Broken
(Dollar Photo Club)

By    |   Monday, 19 October 2015 07:46 AM

The Dow closed last week with a tepid 75-point gain, with the S&P also rising less than half a percentage point.

Investors can still hold out hope that a year-end rally can occur without Fed intervention.

Recently this writer noted that the VIX was 12 and thought, but did not write, that it had the potential to double. Amazingly it quickly quadrupled, handsomely rewarding anyone who bought calls on the VIX, as opposed merely to buying protection to hedge a long portfolio.

On Friday, with the VIX again back below 20, two commentators, David Seaburg of Cowen and Katie Stockton of BTIG, considered what message the VIX might now be sending to markets.

The previous Friday this writer had attended a presentation by Stockton in Philadelphia on the value of technical analysis for traders and investors willing and able to do the work to master the art of determining which indicators work best for the strategies traders and investors employ.

Amanda Drury introduced the CNBC "Trading Nation" segment by noting that the VIX had fallen to the lowest level in two months, and she asked whether this means that the recent spate of volatility is already over. Referring to widespread predictions that volatility was here to stay, she asked Seaburg which camp is right.

Seaburg responded that one should “back up and look at the fear that was in this market – it was ridiculous.” He traced the fear to uncertainty over “what the Fed was going to do, the global economy, what’s happening with earnings, and then throw into the mix the biotech debacle based on a pricing concern. People were afraid.” After an aggressive up move,

Seaburg remarked that the VIX has “come in nicely, the fears have definitely subsided, and I think you’re probably going to see it bounce around this level for a little bit.” He sees “no reason for the fear that would cause the VIX to spike up any time in the near future; a lot of the issues that plagued this tape have subsided, at least for the near term.”

Stockton agreed that the VIX “will keep on subsiding, because these spikes are pretty rare.

The last time we saw the VIX get into that 50 range was 2011, and before that, 2010. Now the VIX has fallen below its 200-day moving average, which is flat, back to what I call its ‘comfort zone’.” She added that this level has prevailed “for most of the last three years, with support in the 10, 11, 12 area. That’s where you start to say maybe we’re getting overly bullish, and we’re not there yet. That’s where you start to worry about the VIX again.”

This writer sees the VIX as evidence that the market is convinced that the Fed will not move to increase interest rates by even a token amount for the foreseeable future, but the Fed’s commitment to the ZIRP will continue to foster excesses in markets that could result in another episode of the ongoing financial crisis.

Therefore, it is a good idea to keep an eye on the VIX.








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Robert-Feinberg
This writer sees the VIX as evidence that the market is convinced that the Fed will not move to increase interest rates by even a token amount for the foreseeable future.
vix, investors, fed, rates
518
2015-46-19
Monday, 19 October 2015 07:46 AM
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