Chart courtesy of TD Ameritrade
Now, of course we've see a bunch of these pops in 2013, including one as recently as mid-April. This one feels a little different in that the others tended toward one- or two-day events that quickly dissipated. This pop has kind of built upon itself over the course of the last couple of weeks.
I make fun of the iPath S&P 500 VIX Short-Term Futures ETN (VXX) pretty much always, but it does have its uses. As a futures proxy, it doesn't contain the same day-of-week and assorted other seasonal biases of the VIX itself. So on quirky VIX days, the VXX can provide a good baseline for volatility assumptions.
Friday was theoretically one of those VIX days. It was a summer Friday, usually a time when the VIX would underperform "real" volatility assumptions. On a "normal" day, the VIX moves about twice the VXX in percentage terms. On a summer Friday, we'd normally see the VIX underperform.
Last Friday was quite different, though. The VXX was up 3.26%. If you told me that and asked me to guess what the VIX did, I would have said it was up something like 5%. And I would have guessed wildly wrong, as the VIX was actually up 12.18%.
One interpretation is that futures have pre-anticipated a VIX pop forever, and all that happened was the VIX caught up to them.
Here's how the term structure looks now, courtesy of VIX Central. (Click to enlarge.)
Chart courtesy of VIX Central
The VIX actually closed at a premium to the June futures, and a very small discount to July. There's still some premium in the outer months, but it's only a day or two of strong VIX action away from flatlining.
The fear right now sure looks pretty real. The obsession seems to be about Fed "tapering." There's of course no way to know how long it takes for that obsession to run its course, and it doesn't matter whether the Fed actually "tapers" or not. I would guess if we find it some Beige Book evidence that the Fed started tapering two months ago, the market would probably rally on the theory that we already discounted the tapering. But … whatever. All we care about is the here and now, and how long this takes to run its course.
The VIX closed Friday about 15% above its 10-day simple moving average. The selloffs in this bull run have tended to stall when it closes roughly 20% above the 10-day. One of these selloffs is going to be a more serious shake out than the ones we've seen so far. I'm looking to get long if/when we violate that 20% threshold, but I'd give myself less leeway to be wrong than usual.
Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.