CBOE Market Volatility Index

Where Is The Vol?

Posted on by George Mahfouz

As the second quarter came to a close yesterday volatility is no where to be found. The CBOE Market Volatility Index also referred to as the VIX has been pretty much dormant this entire year (chart). Typically vol ticks up as we approach summer for a variety of reasons such as earnings reporting season, seasonality and of course the Federal Reserve policy actions. As expected the Fed did raise rates in June but the markets appear to be pricing in a higher interest rate environment. So far this year the Dow Jones Industrial Average (chart) is up 8.03%, the S&P 500 (chart) is up 8.24%, the Nasdaq Composite (chart) is up a whopping 14% and the small-cap Russell 2000 (chart) is up a modest 4.29%.

Seemingly everyday stocks are in melt-up mode. There are days where volatility tries to rear its head up, but that does not last very long. (See chart below). Even when Goldman Sachs came out with a bearish report on June 9th comparing the red-hot tech sector to the internet bubble era, the negative effect of that report lasted only a couple of days before tech found support and then proceeded to make new highs. The traders and investors that are waiting for the proverbial 10% or more correction are just not getting it. Buying the pullbacks is what has been working ever since the election but the problem is that if you are not stepping in on the 1-3% percent retracements, you are missing the next leg up. How much longer can this type of market environment last? Now that Q2 is in the books, earnings reporting season will soon begin. Let’s see if corporate earnings continue to come in stronger than analyst expectations and if so, stocks may just continue to remain bulletproof.

A quick gander at the technical shape of the aforementioned indexes and there are no signs of overbought or oversold conditions according the relative strength index. Therefore I am expecting vol to remain relatively low until at least second quarter earnings season begins. Good luck to all!

Both Paula and I wish everyone a very safe and happy Fourth of July holiday weekend 🙂

~George

VIX Chart - Paula Mahfouz

Markets Cheer Fed Rate Hike!

Posted on by George Mahfouz

As expected, the Federal Reserve raised short term interest rates by one quarter point and indicated that they will keep raising rates throughout the year albeit gradually. I do think what helped the markets yesterday was the language of only two more rate hikes this year. The economic data coming out so far is stronger than expected including the February jobs report which confirmed how the job market is continuing to expand and this had some pundits thinking three more rate hikes were in the cards for 2017, not just two. Markets rallied once again on the news and quite frankly the market is seemingly rallying on anything that hits the tape. That said, the Federal Reserve is doing a masterful job with how it is handling the change of guard so to speak from accommodation to raising rates and how they are communicating each message.

So what does this mean to the markets going forward? I gotta tell you as much as I have been expecting volatility to increase, my expectations now are as long as the Fed remains in its current position, volatility may just stay in hibernation until further notice. I have not seen a market to where vol has been and remains this low. As I write this blog the CBOE Market Volatility Index also know as the VIX remains historically low and even when there is pressure on stocks, the VIX does not move very much, just look at the chart below.

Taking a look at the four major indices, The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) all are within striking distance of their record highs. The question now becomes will valuations be able to support the continuation of this bull market or will this be the catalyst to bring pause into this historic bull run. We won’t have to wait too much longer as the first quarter of 2017 winds down and companies prepare to report their earnings results beginning in April. Paula and I wish everyone a very safe and Happy St. Patrick’s Day 🙂

~George

VIX chart - Paula Mahfouz

 

 

 

Quietly The VIX Elevates…

Posted on by George Mahfouz

Over the past week the CBOE Market Volatility Index aka the VIX (see chart below) has risen over 35%. Not too surprising considering the upcoming elections and the daily rhetoric that has been hitting the wires. What is surprising to me is that even though volatility has spiked recently, the markets have not really dropped. Isn’t how this is supposed to work? Increase in vol equals lower stock prices? The Dow Jones Industrial Average (chart), the S&P 500 (chart) and the Nasdaq (chart) all remain within striking distance of all-time highs and so far these key indices do not seem to be too bothered by the daily political headlines. Even Friday’s surprising if not shocking news that F.B.I. director James Comey has re-opened the Hillary Clinton email case could not rattle the markets. Although this particular headline did send stocks sharply lower in the late afternoon trading on Friday only to find support and close off of the lows.

I will say this; I am even more surprised that yesterday we did not see a sell-off in stocks after everyone had time to digest the news over the weekend. Stock market pundits continue to claim that the markets have priced in a Clinton victory and that her taking the White House in general will be bullish for stocks. I tend to agree with this however; my concern is will this be a “sell the news” event? I will also be paying closer attention to the polls this week to see if the Trump campaign closes in on the Clinton lead. This too can be a market moving dynamic. So as the VIX continues to lift and as we get closer to November 8th, I will error on the side of caution and lighten up any long positions and wait to see how this election plays out. Let’s also see how the markets react and respond to the election results and then come up with a game plan into year-end. Good luck to all 🙂

~George

VIX chart George Mahfouz Jr