Downloading...
Download

Goose

Is Volatility the New Normal? Hi I'm Goose and I'm apparently obsessed with the VIX this week. I would say I've reached a point of borderline stalker, going through historical data, working up average all time range theories, and ultimately writing a script that will give me a bar count inside and outside of a date and price range and the percentage of time during that period that the VIX has gone wild. I used this script compare these statistics across the daily chart in different sections of time. Now, I did this because I am anticipating a return to mean with the VIX any moment now. I'm tapping my fingers and getting impatient. And not because I'm waiting for a rally, I mean, a rally would be cool, but because this has gone on long enough really. So I decided to compare the 2008 Crash historical data with the more recent Covid data. If you haven't read the in's and out's, the timeline and the reasons why, go do that right now. Or just watch The Big Short a couple of times for the cliff notes. But for the sake of this chart, I marked up some of the important moments during what is now known as the Housing Crisis/Great Recession. Theoretically I could have made arguments to drag this period out to 2014, but comparably it makes little sense and frankly, even further drives my theory, so I ended the period when the market had recovered its 50% losses from pre crash peaks. Keep in mind, current markets recovered and S&P Futures made a new high in just under 6 months from the Covid Crash. So this is already an unfair comparison. And that is kind of my point. Comparable factors like unemployment and U.S. Homeownership are actually contradictory for the most part if you omit the summer of 2020. And if you're in the group, as I am, that believes low unemployment numbers promote higher inflation numbers, then we could argue inflation begun, albeit transitory, in May and July of 2018 when unemployment dropped below 4% and really got a foothold in 2019. All it needed was a supply chain interruption. And I know Covid takes the blame for that, but that had started also. China trade, pine beetles, metal shortages, coffee , etc... So when Covid whooped the employment numbers 10 points from March at 4.4%, to April at 14.7%, it basically created a sling shot effect with equities. Come August of 2020 when those numbers rapidly dropped to 8.4% we made brand new highs. And within a year we had dropped back to where we started in the upper 4% range. I know I'm on a tangent, but why is this important? Because in the Covid Market, we turned those numbers around in 1 year, as opposed to the 5 years it took to recover AFTER the end of the Recession and its 5 year recovery. Soooo... That's why I'm not counting that period, and why I'm calling out VIX on is behavior. So lets get to my point. Is the new normal volatile AF ? As it currently stands, and based on a range of $10-$20 dollars which I determined to be fair visually for the initial part of this work up, the VIX has spent 5% more days above the standard range. Now 5% isn't a deal breaker. We can find dramatic headlines that will excuse random volatility but I will argue we are at a crossroads. If we continue to stay above $20, we risk having to work hard and longer to get that figure back down. Remember calculating your GPA , but in reverse. Eventually the shock and awe of a +$30 VIX won't induce the same FOMO reaction and things may get really weird. When VIX goes into the new year, the powers that be will need to reign her in to avoid decoupling on any given Wednesday instead of just low liquidity holidays. My theory actually goes further down the rabbit hole when I narrowed down a true 50% average range, wait for it.... $10 - $16.75! YES! The overall, from inception, average high of range sits at $16.75. And pop on the tin foil hat because with that range, both the Housing Crisis/Great Recession AND the Covid Market are sitting at 91% above range. I checked that 3 times to be sure and I did not include that in the frame of this chart as it already had enough scribbling all over it, but if you explore to the bottom of the chart you will see a smashed up mess of it. So if your listening Market Makers, shut it down, shut it down now. And if that is what you are setting up to do as I have already speculated in a previous work up, well done! Keep it up. I know for a fact that the VIX is heavily relied upon by many successful traders in many different products for directional bias, let's not ruin it shall we... On this chart you will see the table bar counts for inside and outside of price range for the specified period as well as the total bar count and the percentage of bars outside of that range. That means up OR down so the period between the Recession and Covid has 12% outside of range, but you will notice that it goes below the range as well. When the price range was moved down beneath the lows to $8, it lowered the percentage by 3 points. I have also labeled some fun facts that occurred during the historical period to show a bit about why I choose the dates that I did. Leave a comment for a heated debate, or to tell me how cool I am, or that I'm just a silly Goose. en.wikipedia.org www.statista.com data.bls.gov
TVC:VIX
by goofoffgoose
VIX setting up for a Santa Rally?I've spent a lot of time drawing on the VIX chart today since we are coming up on an area that defines 3 separate ascending wedge patterns with one starting before the 2020 run that we have tapped twice without making a lower low. And although that lower trendline is still quite a way down, currently at 16.57, it's not a far stretch if retail sales come out strong, JP keeps quiet, and there are plans for a Santa rally lurking behind the scenes. With that being said, we have just broken the next oldest pattern, and the youngest one not much farther down at 19.66 and the .86 fib of the 2020 run up is smack in the middle at 20.13 so for tomorrow, I have potential reversal area from 20.44 to 20.13 with 20.13 to 19.71 becoming bearish down to below 19. My argument for the upside is a bit more hocus pocus as I had to put on a pitchfork to even feel good about it, but we made the inside candle Friday, which, big deal, it was a half day, but following that with an outside candle on a retail rich week wouldn't shock me at all. So I'm gonna throw my dart. If we gap up, we hit around 21.30 and come back down to close between 19.89 and 20.13 in which case the case for breaking down past 19.66 becomes more likely. SANTA RALLY!!! But, if we gap down into that bounce zone and don't break the 20.13, then we still close high and and head back to Wednesdays high. I like this case more if we bounce off the Daily low and just double bottom. BUT, I'm still leaning to a high of 22.30 on the WEEK, just because I feel like the case is better stated for a downside overall. We just have much more reason to pull back down with the biggest reason being that we haven't retested that 2020 pattern for over a year. Historically I don't see any rhyme or reason except that VIX does tend to rise during December if only for a day, and even that isn't well structured. Sooo... who the knows then the VIX is gonna VIX. What we do know is that we have spent so much time in what used to be high volatilely territory that we've started to make a home here and that contradicts what the VIX is designed to do. We've held above averages, between $10-20, for more days and gone higher than we did in the '08 housing crisis, and all while our economy is too strong for its own good. So we've either become fairly melodramatic, OR we're setting up residence. If the latter is true then we can just throw out all historical data that predates circa 2018 and start anew. I personally want to see what happens if we break down below 16.50. Do we stabilize and go back to a boring trend style value market? Or does everyone freak out and rabidly buy everything in sight. All we can do is wait, and look to the right.
TVC:VIX
by goofoffgoose