Is this it? That's the question I have been asking myself all morning. Is the market finally going to turn?
Front-month VIX futures have risen 30% today, but, interestingly, the following month's futures have not risen as much. As the term structure of the VIX has flattened (and even gone into backwardation from the August-September perspective) I have been buying volatility-linked ETNs (iPath S&P 500 VIX ST Futures ETN (VXX) and VelocityShares Daily 2x VIX Short-Term ETN (TVIX) ) today. These vehicles are structurally hampered by the need to keep reinvesting funds in future-month contracts, a value-destroying strategy in an upward-sloped VIX curve. That may be turning. Also, if we have a really big blowout in the next couple days, those volatility-linked ETNs will perform well as short-term trades and hedge against market declines, regardless of their medium-term characteristics.
Complacency is the volatility trader's friend, and as we enter the tenth month of the Trump Jump, it may be the biggest factor facing the markets. Each time we have seen even a tiny crack form in the market's wall of bullishness, the air of optimism -- and higher stock prices -- has returned quickly and the shorts have been zapped. But are we really do for a correction, and is the possibility of such a move -- no matter how remote--accurately reflected in the zeitgeist of today's market?
For the answer to that, let me look at the CNBC.com homepage. CNBC's ratings recently hit a 22-year low, and while I often use CNBC as my poster child for the complacency and cheerleading in the market, it is still a relevant, if less popular, news source for financial markets. As more people are gaining news from the Web and I don't have time to subject myself to any televised blabbering during a busy Thursday, I'll go to cnbc.com's home page for my source. These are the top headlines, followed by my quick analysis of newsworthiness/relevance.:
- A report on a study on immigration from Wharton: Irrelevant and not worth my time.
- "Every company is a tech company now even Blue Apron:" Don't care; (APRN) is now a sub-$1 billion market cap company. Why so much fascination with APRN and (SNAP) ?
- A story on Snap's upcoming earnings report: see above
- Wes Clark on North Korea: Somewhat relevant, but from a has-been
- Outrage over Walmart (WMT) gun ad placement: Really?
- Story on upcoming eclipse: Tremendously relevant as astronomy informs most of my trading strategy
- Millennials are wasting home down payments on bachelor blow outs: I have no words
- Trump/North Korea: Relevant
- Buy Home Depot (HD) before earnings (from Jefferies) This is the type of story that should dominate cnbc.com's site, not closely follow a story on blowouts
- ADP (ADP) CEO criticizes Bill Ackman: Inside baseball on a name I don't own, but stock-specific, so I am happy to see it.
- ER costs skyrocketing: CNBC regularly features pro-ACA stories (generated by NBC News,) but it's nice to see an admission that ObamaCare has increased, not decreased, trips to the ER. Irrelevant to my portfolio, though.
- Early Apple (AAPL) employee secrets of success: Should be on LinkedIn, not cnbc.com.
- A story--reposted from the Financial Times--on Silicon Valley's rediscovery of LSD: I'm not making this up.
- Where to buy an inflatable chicken that looks like Trump: Stock mover
- A retirement loophole piece featuring a picture of Ferris, Cameron and Sloane outside Chez Quis: Ferris gets away with everything, but he did get a computer instead of a car for his birthday.
So, basing the analysis solely in cnbc.com's front page, is there complacency in the financial markets? Hell, yes. Kim Jong Un -- certainly one of the most relevant figures in the world today -- is sharing space with stories on blowouts, acid, an inflatable chicken and a photo from a John Hughes movie.
So, I'm buying volatility today, with the prior knowledge that those ETNs only really work if the market turns in the next few trading days. The inflatable chicken and I will be watching intently.