November 2018 Momo Update

Today marks the last session of November which is a good occasion to take stock where we are on the momo front. A lot of folks got blown out of their short positions on Wednesday and judging by the heated exchanges in the comment section yesterday emotions are running high, which frankly isn’t surprising after a year of constant nerve fraying whipsaw. It’s tested the mettle of even the most skilled traders and I wonder how many people would have simply taken the year off knowing what would transpire.

That’s an older VIX chart of mine which is based on an IV expansion rule I once came up with. The first step in the VIX expansion rule is that it must have dropped < the -40 mark on the ROC (I’m sure you could use any number of momo indicators instead). The second is that it then must breach > the zero mark, after which continuation > VIX 20 appears to be unavoidable. Which is exactly what happened once again this year.

The IVTS has been falling slowly and VIXEN managed to scalp a few winning campaigns. However a drop back < 0.9 is needed before the bearish scenario starts to lose sufficient luster and confidence returns to equities. The bear has shown his claws twice this year, so a simple high volatility bounce here won’t do. Continuation is everything.

SKEW:VIX is telling a similar story. There is an opening for the bulls here but as long as we see a series of lower highs and lower lows on the ratio this can quickly and violently resolve lower. There simply isn’t sufficient widespread confidence in equities right now – at least not yet. We all know that except for a small group of insiders almost nobody caught this punch higher, so very little keeps the same group from pulling liquidity if it serves their needs.

More momo analysis below the fold:


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