The Fed's stock bashing last week sets up interesting tests this week.
UVXY was on a rail higher on Friday, but opened more dynamically with a big pop today... only to correct back to the trend line from Friday... but with a big gap relative to the short term VIX.
The SPY options show that there's a huge expectation built into the market in the short term... that the current decline is still "more of the same" as the range bound trading we've been in.. as the put options valuations drop off pretty steeply at around the 410 mark, as the prior lower limit in the "trading range".
So, as that limit is approached, should see some increases in volatility as bets are tested... and if and as thresholds are crossed, one way or the other, we might see some significant accelerations occurring...
The trade prior to Friday... made it clear the BFTD crowd have been hanging tough... to the limit that It took the Fed pushing them off the cliff to get them to consider resetting where they expect the bottom of the dip to buy might be... And, for now... that appears to be about where we are... in the 420 range, down to 410...
At the same time... KOLD has waffled and BOIL has caught a bid... but, thus, raising the question of the proper perspective to have... whether pricing for natural gas should be focused on the dynamic established in the gas trade over the last few months... encountering limits in a bit of excess on the upside, relative to the likely pace at which U.S. supply can be converted into LNG and join international markets at much higher prices... Or, it the ECB now raising rates to zerp... at the same time Europe (and the u.S.) are backing into an expanding war with Russia... while the markets are declining... suggests the proper focus on KOLD is that in relation to the energy trade as markets... and the economy... fall off a cliff... in the rotation of stocks higher, energy higher, VIX spikes (ongoing today ?) stocks lower, KOLD soars... ?
The Fed having given the markets a push down the stains last week... doesn't answer the question of how many stairs there were left between the point of the push and the bottom...
And, that's the point of the trade this week it seems... with the 410 in the SPY being a significant threshold... and if the market crosses that point... it will lead to significant re-evaluations of positions...
Capitulation hasn't begun... but, from here, you can see where it might begin...
That still not answering the question about "timing"... whether we should expect an acceleration into a crash from here... or a drop leading into a continuation move taking us lower into a grinding bear market that might take a year or two ? And, still, the "new all time highs are coming crowd" are not surrendering that story line...
And, they might be right... if we get an accelerated move and the Fed opts to reverse course in a way that imposes that outcome... and the market continues to grapple with "hawkishness" that's not sufficient to have any impact on the accelerating inflation ?
Two divisions... one between the market and Fed speak... and one between Fed speak and reality... has the divisions only continuing to grow... with the rate of change in the gap between them accelerating...
We're not yet at a market capitulation event... much less at a recognition event linking "where we are" directly to a perception of reality that, were it to occur, might tend to pry the wheels off the monetary system...
Everyone in the know... knows that's the conundrum... and the rest is a quibble about timing...
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