Once More Unto The Breach, My Friends…

Vol. of Vol., 2014, S&P500

“What siege, and charge, is this?” you ask.

No, not for any city, as this cry was famed to have inspired. Nor a call to rally anyone… not yet. No, this is to muster courage, to strengthen the spirit, to once again attack the bastion of materialism that shelters the privileged few and oppresses the vast majority.

Overly poetic? Perhaps…but resolute. I’ve stayed away from capital markets long enough. This is the means – the vehicle – by which the 1% differentiate themselves from the rest of us all. It is this that we too must demystify, learn in full, and participate in with vigor. This is the dictator’s castle we must storm…and swarm, to open it up for everyone.

It is said to be a rigged game – a massive Ponzi scheme by some – but is nevertheless a dominant aspect of global society today. Leaders and governments come and go, groomed by the resources held by those who’ve established themselves at the top of this unnatural mountain. These shadow dictators determine how society runs. The rest of the process – democratic exercise – is but an illusion; the past many years firmed my conviction of this reality. This is the game I too must play, and play to win. And I am resolved to play it guided by ethics long discarded by most in this game.

“But what does the chart show,” you ask with diminishing patience.

It’s a plot of an index…of the volatility of volatility of the broader market, plotted for the past year in blue with VIX (orange, volatility) and SPX (green, broader market) from a CNBC information page.

SPX, or the S&P500 index, you do know. VIX is related to an exchange traded note (VXX, a paper you can buy and sell in the ‘free’ market) whose price is determined by what investors are willing to pay to insure themselves against a market fall. Hence VIX is called the fear index; as investors become more concerned about the market rise and its sustainability, they buy more of this insurance. VVIX is the rate of change of VIX, a derivative of what may be called a sentiment derivative of the market. A complex derivative, an aspect of today’s markets I’ve alluded to in Humbling and Humility.

“Spare us the details, the complexity!” you say? I’ll summarize…

Now note that VVIX is stronger (peaked higher) most recently, and its moving average (a measure averaged over a moving window of a number of days, not plotted) is rising. A divergence – market term for a trend that does not follow the expected course – to note is that the recent peak in VVIX is higher, though both the VIX and SPX extrema are lower. Though the market, and fear, moved less, the speed with which fear rose increased.

Fear in the markets appears to be rising more rapidly. And subsiding similarly too. Traders are jittery, on edge, perhaps. And since VIX reflects insurance against a market fall, the recent VVIX action could imply a heightened sensitivity to the possibility of a fall in the market. Yes, with a bull market having run on for more than six years now, and despite what seems to be a strong economy and good prospects ahead, a consolidation, and possibly a deep correction, is what is anticipated in the year ahead.

Full disclosure: I hold a small quantity of TVIX (an amplified exchange traded note based upon the VIX) at present…in market terms, I am long VIX.

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About Rian Nejar

Rian Nejar is a mid-60's child from India. He trained and worked as an engineer in India, lived briefly in the Middle East, and arrived in America in the early 90's. After a Master’s degree in electrical engineering in America, he worked as an academic instructor, engineer, entrepreneur, and technical writer over the two decades since. Humbling and Humility is the first heartfelt written expression of his varied life experiences. He lives and writes in the Southwest United States.
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2 Responses to Once More Unto The Breach, My Friends…

  1. Pingback: Spot a Market Pattern Repeating Itself? | Humbling and Humility

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