Despite hitting new all-time highs on the Dow this recently, a major indicator that just reached a near-record is about to rock markets.
June 27 (King World News) – From Jason Goepfert at SentimenTrader: Speculators have established a near-record short position in VIX futures even as options traders are holding a near-record number of call options relative to put options. The few times we’ve seen that combination, the VIX was bottoming and witnessed a large spike every time.
The most discussed aspect of today’s markets is probably the lack of volatility. It has been a topic for months, with no real impact so far.
We haven’t discussed it much lately because it’s the same story it has been for most of the past two months. Except for a very brief spike in May, volatility expectations across assets, especially for stocks, have been comatose…
Continue reading the SentimenTrader piece below…
Goepfert continues: There are a few signs that might change imminently. There is a divergence in extremes between the futures and options market that has preceded a spike each time, even though it took a while earlier this year. Namely, speculators are heavily short VIX futures, while at the same time there are among the fewest put options outstanding ever relative to call options.
The few dates these indicators have been extremely low at the same time were 2006-12-28, 2015-06-10, 2017-01-10, 2017-05-16, and now. Prior to the last year, we can see from the thumbnail charts below that within the next two months, the VIX at least doubled. After the January 2017 instance, its downside was limited and it ended up rising about 40% into April. The May spike happened almost immediately.
It’s tough to read the VIX right now because of so many crosscurrents that haven’t existed before, and it may not act like it has in the past. Even if it does, it’s hard to trade it. The best takeaway is simply that conditions are ripe for a spike (see below).
This piece is just one example of why Jason Goepfert is the best in the world at what he does. The chart and commentary above are from SentimenTrader. To try a free 14-day trial of the internationally acclaimed work that Jason Goepfert produces at SentimenTrader simply CLICK HERE.
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