The decrease in the VIX this week suggests a return of the short volatility trade, a perennial favourite during central bank asset purchases. There had been the potential for the risk-off trade and this represents its failure.
The next opportunity, sans force majeure, is above the high in the S&P 500. It is likely to relate to systematic financial risk that prompts a forced de-leveraging in China and/or the US.
Besides that energy has sold off, which is something we are watching for the potential of inflation. Soft commodities were bid unevenly, and we continue to keep an eye on this.
With earnings coming out in the US the markets have bid risk in spite of average results. It looks like a case of not fighting the fed at this stage. Short interest is at an all-time low in equity markets, and there has been a record amount of cash on the sidelines.
This in spite of coronavirus infections picking up in the United States, a US v China confrontation is picking up and the obvious cashflow issues in having Western economies shut down for long periods of time in 2020.
On the plus side, an infrastructure fiscal stimulus has been discussed, and inflation is becoming an end in and of itself in US Federal Reserve Bank policy – potentially some Abenomics for the US?
Some major and important market commentators have discussed a tech-bubble, with the Nasdaq / S&P500 ratio as high as it was during the 2000 bubble. Tesla, Amazon and Facebook, but especially Tesla have had an incredible fortnight.
The appeal of technology has spilled into digital assets, with bids across alt-coins continuing this week, especially de-fi projects.
Ethereum and Bitcoin are stubbornly holding onto their levels and remain assets to watch for break-outs.
General markets are likely to continue meandering while periodically stopping out shorts.
Bitcoin has continued to trade in a very tight range over the last week, even tighter than it had the week before. The market is trading into a technical pocket and without significant moves, continues to threaten to make a move without ever actually doing so.
Trading volumes in Bitcoin are as low as they have ever been.
This weekly chart shows one of the lowest traded fortnights in the last 2 years.
Volatility had been low, but has since collapsed to 22.5% the last couple of days.
Priced volatility for December calls ranges from 67-80%.
December calls are pricing volatility in a range from 67-80% and options trading is low volume, with no prices being made in some strikes, especially in the near-term.
Crypto market sentiment analysis has not moved, with the longest period of unchanged sentiment since the figure was first calculated, Feb 2018.
Digital Assets sans Bitcoin have been bullish lately, with smooth chart action. At 63% market dominance, it feels like there is room either side for movement.
We have seen the USD depreciate over the week, with price action in the index that looked like a market in which half the market knew something the other half didn’t.
Gold is hanging around at the high of its trend-channel, breaking out of a potentially new arc that could see it break cleanly out.