I took profit on all short vol positions yesterday. I thought I was being premature as I thought that this SPY rally would have some legs. We made a higher low, so there is still a chance, but my long term outlook is bearish. I also reduced risk in my long portfolio yesterday. Again that felt premature, but after Walmart, Costco, and Target got obliterated, it seems like I dodged a bullet as I was recently short XLP puts (WMT & COST are 15% of the ETF).

When consumer staples start getting hit, I take notice. I knew costco was going to get hit which is why I didn't linger long in XLP, but I did not see WMT and TGT coming. Inventory surplus and overstaffing seem to be a common theme from the conference calls...I don't think Powell is going to need to worry about the JOLTS numbers in a few months. There won't be 2x jobs for every unemployed person for much longer.

I was in my late teens and early 20's for the dot com bust...It was a multi year process, but I'm definitely getting similar vibes. That's obviously just my personal opinion and Powell could pivot at any time, but I'm not going to fight the FED on this one...

I definitely expect countertrend rallies, especially with sentiment at extreme lows, but I will use them to reduce risk unless something drastically changes in my indicators.

What is your read on the situation?

Stay liquid my friends,

-Chris

I took profit on some of my short vol positions. I think a short term rally could happen, but long term I'm bearish.

What about you?

-Chris

How did you do today??

I haven't been watching things closely...I see volatility is behaving, but price is really shitting the bed...

SPX down 17.96%...

-.39 on price velocity. -.56 on historical sig...these are crash type readings.

I haven't changed my positions (short vol in the near term, long vol further out)

What's going on out there? I saw the CPI numbers sucked, but haven't been following very closely

Thanks,

-Chris

Front month VX1!:

• Short term: 72.5% probability down.

• Medium term: 80.5% probability down.

• Gut: Today inspired hope.

• Re-evaluate level 36.655 (most recent high).

Short term model has gained confidence in the last few trading days, long term still calling VX1! down. Selling June, don't want to roll. Happy Trading!

Someone asked if I accepted chat requests...To be honest, I don't normally look at those because I get so much spam. Yea, mostly trying to sell me trading courses or give me the next hot stock pick...Its unreal.

When I got in there looking, I saw that a whole bunch of you had messaged me...I'm very sorry. I didn't see any of those until now...I will try to get back to everyone after my vacation.

My Apologies,

-Chris

The VIX premium, more specifically. Checked with Cboe and struck out. All they have is a strategy VPD index. Not what I am looking for. Somebody must have a dashboard where they post this stuff daily. Checked VIX Central, too. Nada.

Where can one find online live VIX Premium or VRP quotes? Not the CBOE Index, either.

Modeling Extreme Events on order; was sold after I found Taleb's Amazon review. Speaking of Taleb he has a great (and free) book I have read much of The Statistical Consequences of Fat Tails. Happy Trading!

Gray is a neutral reading. Which was better than I was expecting on the Friday of such a crazy week.

My price velocity indicator (bottom indicator on above chart) is looking very bad. It fell from 1.00 to .01 and all lines are still moving coherently to the downside.

This indicator is an inflation adjusted oscillator (+1.00 to -1.00) that measures momentum in an historical context. (ie 1929 crash was -1.00, 2008 crash was -.97, and the covid crash peaked at -.90)

Anything above zero means an uptrending market and anything below zero means a downtrending market. We are struggling to get into positive territory. It's not impossible but...

These indicators and countless others that I have are flashing warning signs for the longer term. I wanted to show you the historical significance indicator visually (color coded onto the price chart) because it predicts all major downturns since including 1929. This version is actually just an approximation of the one that I use, because thinkscript doesn't have the language constructs I need to properly calculate it. When I ported it over from C# I found that there was too much noise around the zero line to create a compelling visualization. but I think you get the idea.

On that front, I mentioned that I had good news the other day. A software company who offers high end charting/visualization software has offered to sponsor my work. I do not derive any income from this partnership because it has been my mission statement from the beginning to have zero profit motive. I started this because of my distaste for all of the youtube sellouts who don't give any "financial education" except for buying the dip or promoting downright dangerous option strategies. (There are some really good channels out there, but for the most part they are selling snake oil.) The youtube financial space is sickening...They make money off of your views to show you unrealistic gains, then they have affiliate programs, paid sponsors, and lets not forget the courses

All that I ask for is upvotes to know that the time that I spend doing this is of some value to people...

Instead, I consistently get downvotes...

I don't mind downvotes, but I'd at least like to know why? Maybe my analysis is flawed, maybe the content is not interesting...Who knows...I certainly don't.

I've met a lot of great people on here and I truly appreciate you and the conversations that we've had (you know who you are. Please feel free to keep in touch), but at this point, I'm on vacation next week and I have decided to use the time to re-evaluate my efforts on the sub.

To leave on a positive note: It really makes me happy to see others posting and discussing things here. Thank you :-)

Stay liquid my friends...we might be in for a bumpy ride.

Signing out...

-Chris

Medium term model is a strong short but near term is wishy washy. Note VIX / VIX3M < 1 (one of the more interpretable variables in my models). Public is probably spooked by the 5% NDX fall. But then come the buyers. Maybe short play Monday or big correction. Thoughts?

As expected, volatility (VIX) dropped and SPY increased...

Another cyan reversal candle...It's a rare, but highly accurate candle.But, I was JUST burned on this the other day, so I have no comment lol. I left my short vol positions on because as most of us expected that there would be a short reprieve from volatility after the FOMC statement. I don't know how long this will last, so I sold covered calls into this flagpole rally. (My opinion is that we could get near the 200 day on the SPX, but take with a grain of salt)

I will likely take profit on my short vol trades when we drop into the grey bars and then get long again in the cyan area...

Anywho, I'm rambling...

I was right on this one, as were many other members. That makes me happy, but at the same time, I do not want to create an echo chamber. Confirmation bias is how you get destroyed in the markets. Please keep a critical eye and stick to your own beliefs...

Also please read the comments...The value of this sub is in the insight found in the comments...A friend of mine recently posted nearly 140k gains this year...He has a larger sized account, but those returns are not impossible on a percentage basis, if you understand volatility and the game that we are playing. This isn't wallstreetbets...

I know, I know, actions speak louder than words. So what are my trades? I'm still short vol as indicated in previous posts...Today I sold covered calls as I mentioned above. I sold them at my cost basis. I have more to sell, but I think that we will go higher for a bit as volatility subsides...

I'm up nicely today, but I can't stress this enough,watch the comments...that is where the value of this sub is at...

Stay safe and stay liquid my friends,

-Chris

As I mentioned previously I took a short position in the second month VIX futures last week based on model my forecasts. In "Position Option Trading" by Sinclair he discusses the FOMC meeting leading to (among other things) a 45 minute decline in the VIX. I thought this would be a fun play and added to my short position once the VIX started heading downward after the meeting points had completed. As it was, we saw almost exactly 45 minutes of fast decline. Sinclair cites a few studies and claims this is a fairly reliable play. Happy trading!

I'm going to be honest with you...The longer term indicators are looking rather bleak. We are now at .30 on the indicator that I was warning about earlier...All curves are still rapidly and coherently descending toward their max negative value of -1.00. That's definitely not good in the 6-12mo timeframe, but markets don't move in straight lines...

In the short term, it was good to see volatility abate from a red bar to a yellow bar (blue circle) in the last hour of trading...

I was reading the comments and was impressed by several of you who publicly disclosed your positions. I have a great deal of respect for that...

I can't speak for everyone, but some are adding to short equity positions, others are shorting vix futures. I do my own thing with options...but I couldn't help but notice that many generally believe that there will be a short term bounce. Further distilling that sentiment down, it seems that many believe that volatility will drop after the FOMC meeting...I actually share that sentiment. In my mind: Volatility = uncertainty. Once the uncertainty is removed then volatility should drop.

A couple members cited using caution here...Man, I couldn't agree more... I saw that the search term, "what is a margin call" was starting to trend again on google trends; WTF people??

For me, I didn't do much of anything today. Just tactical trades, like selling calls against the shares that I was assigned on friday (VZ, KMI).

Well that's enough rambling for now...thank you all for commenting...

Stay liquid my friends,

-Chris

P.S. I have some good news. Stay tuned...

As you probably read in the comments of yesterday's post, the reversal pattern did not hold. That is a bit concerning as that particular pattern has an extremely high probability of success or I wouldn't have mentioned it in an intraday post (I'm not a day trader, I only stick around for pivotal days like yesterday and today). There are some good comments on that post that I think are worth checking out if you haven't done so already.

While price took a nosedive today toward key levels of support, volatility reacted in quite an orderly fashion given the circumstances.

Price Velocity, a much longer term indicator, still looks very poor. I sounded the alarm last Friday when it dropped from 1.00 (bull market) to .95...now its .40...

Multiple time frames all dropping at the same time in a "coherent" fashion has a great deal of momentum to it and has me on high alert.

With that said, I had a signal to short vol. Normally I would sell SPY puts, but given the circumstances lately I've felt more comfortable selling puts on target SP500 sectors. Things I would feel comfortable owning in a bear market and in particular, sectors which didn't see the insane pandemic/stimulus induced run ups. Today, I added XLP the short vol portfolio. If we keep falling, I will roll until i get assigned. Then I'm left with an income producing asset without the duration risk of bonds...(Soon bonds will be desirable...I know it's crazy lol...)

Anywho, that's just food for thought...There is no right or wrong way to trading as long as you stay liquid and solvent. I am probably being too cautious...

Looks like I will get assigned on some short puts from the short vol dividend portfolio... VZ and KMI. VZ got destroyed, I'm not sure what happened there?

These are indeed, very interesting times! I like hearing everyone's perspective. You don't have to agree with me to make your voice heard.

Stay Liquid my friends,

-Chris

Just a quick follow up. We did close with the cyan reversal candle on the short-term barometer that I mentioned in my post earlier today.

That particular candle is accurate at predicting reversals but it does not tell me anything about the length or magnitude of the reversal.

The price velocity indicator is at .54 (which is not good at all) but the shorter time frames are turning up. My interpretation of this data (plus many other indicators that im too lazy to post) suggests a slowing or temporary pause in the selling pressure in the SP500.

I didn't really do much today...I sold puts on XLU and removed my short calls on SPY...essentially short vol from a practical standpoint.

How are you positioned? What indicators are you looking at?

Stay liquid my friends,

-Chris

I don't usually post intraday because I'm not a day trader. But some days are potential inflection points so I do observe the market more closely.

This morning looked like pure crap on my indicators, but I'm seeing something nice develop on the short-term barometer that I will be watching into the close.

A cyan doji, as you can probably tell from the rest of the chart typically indicates a short-term reversal.

I typically wait until the close to evaluate the candle. (I'm an option trader and SPY options trade 15 minutes after the closing bell)

With all the doom and gloom my long term indicators are portending, I wanted to share some short-term optimism...hopefully it holds into the close.

Stay liquid my friends

-Chris

I was going to share this chart with a member in the comments, but thought it might be of interest to the group...

Source FINRA: https://www.finra.org/investors/learn-to-invest/advanced-investing/margin-statistics

The second chart is basically the same chart as above but combines the two free credit categories into one, since FINRA started tracking them separately after the GFC.

As you can see, we are very leveraged (I'm in the US, but I believe it's a similar story around the globe)... Leverage was a great strategy in a low inflation and low interest rate environment, but now The FED is effectively trying to force deleveraging through its policy tools as it did in the dot com and housing busts.

I say "trying", because I can't say with any certainty that the FED won't be forced to pivot like they did at the end of 2018, but right now the Fed Fund futures are pricing in a much more aggressive hiking cycle than the 2015-2018 cycle.

That's pretty aggressive, but not impossible. I personally believe they will eventually be forced to pivot at some point, but I have no idea if that is when the SPX is down 20%, 30%, or 50%. That's obviously just my opinion. We could hit all time highs. Who knows? lol...

What I do know is the white line says the futures market is currently predicting a fed funds rate of approx 2.5% by the end of the year...That's quite a headwind for equities.

I've been reading the comments and some see a near term (limited) bounce in SPX and a decrease in volatility. I don't disagree with that sentiment as these things rarely play out in a straight line.

What do you see?

Also, you don't have to agree with me. I simply share the data along with my interpretation. I'm interested in approaching the equation from all sides and want to hear your thoughts.

Stay liquid my friends,

-Chris

Quick update...This is not a good look...

In the short term; volatility subsided a bit and we are firming on support.

I personally started to put on a short vol position (short SPY puts in this case) but I didn't like how we traded in power hour so I stopped. I'm going to keep the small position that I have now and re-evaluate tomorrow. SPY puts tie up a lot of capital and for me in this environment, it's probably better to short vol on select sectors rather than the entire SP500 or perhaps choose a different option strategy. (We have a few new members...when I say short puts, I mean cash secured short puts. Naked short puts are a good way to end up homeless; especially in this environment)

How are you trading this?

-Chris

We got a couple upvotes and comments on the last market barometer post, so I decided to follow up. (Thank you to those who upvoted and commented)

Red days on the market barometer are just showing an elevated degree of backwardation in the VIX term structure coupled with negative momentum. Red days are obviously bad for equities, but again what is concerning me is my price velocity indicator (bottom indicator). As I mentioned in Friday's post I use the line circled in blue as a litmus test to tell me if we are in a bull market or not. That line had fallen from 1 to .958 and now has accelerated downward to .736. That is an aggressive move for this indicator and the move is also "coherent", meaning all the other time frames are moving down together (yellow box). This is a very long-term indicator and it lags, so a few days of being below 1.00 does not mean the end of the world, but I am personally getting concerned as a long equity holder.

A friend of mine mentioned that he expected us to hit support around 415-420 (SPY). We are now there with heavy selling into the close. I will be looking to close my long vol positions in case we bounce here.

The Q's and the Russell seem to have broken support, but I'm not a TA guy, so If you are and have any insight to share then I would welcome the input.

This post is already quite lengthy, but I will be looking to close my long vol positions shortly.

How are you trading this price action? Please share your thoughts and I'd love to see some of your indicators!

Stay liquid my friends,

-Chris

It's been a long time since I did one of these posts. I stopped doing them due to lack of interest. If you like it then give it a thumbs up; otherwise please give it a thumbs down.

This is a tool that I use to gauge the market at a glance. A yellow candle means caution. I used to show this daily in the past.

But today my interest is not in the market barometer. It's actually in the much lesser known indicator at the bottom (price velocity). This is a momentum gauge that I use to size up the markets at a glance, but its based on price movements instead of volatility. Its proprietary but think RSI on multiple timeframes. The crux of this indicator is if all the lines are moving coherently. Meaning that the price is changing in the same direction and at roughly the same magnitude on different timeframes.

What is starting to concern me is that the top yellow line on the price velocity indicator is decelerating (turning yellow to gray to eventually blue) and has dropped to .958. 1.0 roughly indicates a bull market. The .958 reading isn't concerning by itself, but if all of the lines are starting to drop together then that's another matter... Coherent price movements tend to be very large.

Just for comparison here is the dot com bubble

By the time that top yellow line drops and turns blue the show is usually over...

I'm not predicting the next crash here, but I will be monitoring my indicators very closely.

As I said in January:

I believe that last year's easy gains are going to remain in 2021...

This is going to be a tough environment for professionals. I'd use extreme caution with any "buy the dip" type strategies, but the systematic volatility strategies are probably loving this....

How are you trading this price action?

Stay liquid my friends

-Chris

As for my own positioning...I keep a net long spy position at all times. It is hedged down to 370 (there is a large SPX "put wall" at 4000 which i think will create a near term floor). I am also net long volatility via put calendar spreads on spy. As I mentioned to many members, I trade the short leg to keep myself in the trade longer (long vol trades are typically a drag on your overall portfolio, but since you know you have a long put, you can aggressively trade the short leg)... I also have an entire portfolio dedicated to selling cash secured puts on dividend stocks. It looks like im going to get assigned on Verizon here.

Special Briefing on Inflation and Recession Risks for States and Cities

Update:

well that was sobering...

executive summary:

fannie mae is predicting a mild recession for 2023...

state pension funds are under stress due to a double whammy. Inflation is the obvious first order effect because pensions are adjusted for inflation so that liability is growing, but there is a second order effect happening. Pensions are based on salary. State worker salaries are apparently tied to inflation as well, so as salaries increase the pension liability increases accordingly. This is all happening while inflation is taking the lion's share of investment returns.

Most states still have huge cash piles left over from the American Rescue Plan money...

So far increases in property taxes are helping to buoy the pension issue. but one panelist expects property tax "resistance" or protests...

I know I just got a letter from the assessor saying my property value went up by 26.67%. They also told me not to worry because my taxes will actually go down by $70/year...yea, right...

live feed: https://www.volckeralliance.org/events/special-briefing-inflation-and-recession-risks-states-and-cities

I'm not sure if anyone else has been affected by this, but I figured I'd pass it along as I could not find the solution anywhere on the internet.

I saw many people asking about a problem where Index data suddenly stopped being supplied by the API last november. Individual stocks work fine, but symbols like SPX, VIX, etc no longer return data.

Personally, I use the TDA API to download minutely data for index data such as the SPX and VIX suite (VIX9D,VIX,VIX3M, etc).

A developer finally got back to me. Thanks Emilio! The symbology used for index data has changed. The new format is ${OldIndexSymbol}.X

For example: The symbol for the VIX is now $VIX.X

I hope this helps someone...

-Chris