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Market Volatility Bulletin: Armistice Day

The Balance of Trade profile picture
The Balance of Trade


  • Global equities are celebrating the news of a suspension in trade hostilities between the US and China.
  • The term structure is flat, but spot VIX is at the low end of its trading range.
  • Thanks to readers for substantive Q&A.

Market Intro

CNBC: 12:57 PM EST

A temporary hold has been placed in the ongoing trade saga, and while off their highs, US equities (SPY, DIA, QQQ, IWM) are taking this time to partake of some holiday cheer.

The cease will last for ninety days. Global shares are enjoying a boost (ACWI).

One potential result of this pause in negotiations is a weakening in the dollar (UUP). In particular, the USD:CNY pair jumped quite favorably in favor of the yuan.

Spot volatility (VXX) took a pretty substantive spill, and vol traders may look to reload here soon. Having said that, this is a continuation of a pattern of steadily falling volatility over the last couple weeks.

Thoughts on Volatility

I happen to disagree on both counts. Policy error does not necessarily account for short-term vs. long-term considerations.

Rates were kept at state-of-emergency lows for a very long time, and while times may or may not be booming, hardly anyone would opine that the US economy is in horrific state (at least not by standard metrics).

Of course, it is possible that we're headed for a slowdown… but who is "we"? The US? Europe? China?

The S&P has enjoyed something of a rebound on Monday, though a fair bit of that initial pre-market gain has at this time been given back.

But credit spreads do matter. Arguably one of the important reasons that 2016 did not get nastier was the gigantic rebound in oil (USO) and commodities more broadly.

It will be interesting to see how black gold fares here, and if there is an impact on spreads. I do believe that it would be difficult for global stocks to rally in the face of widening spreads.

It looks as though we actually have something resembling a wall of worry. The S&P

This article was written by

The Balance of Trade profile picture
Adam Zingg, CFA offers both practical and theoretical perspectives that will benefit readers who wish to learn more about how to execute  on views or strategies that interest them.  Whatever your overarching philosophy or expertise, I believe there is value in understanding how trading works. This is perhaps especially true for investors, who often take a more philosophical, less mechanical view when it comes to their processes. It is not my goal to:1) convince you which side of the market to be on2) establish your trading time frames3) have you directly follow any specific trade ideasInstead, I aim to demonstrate how complicated sounding ideas can be simplified and accessible.  My hope is to grow your tool kit of resources, and give you healthy confidence to execute your own personalized strategy.  Trading and investment are fascinating, applicable across a wide variety of fields and disciplines.  Greater focus on targeting, execution, and exit strategies build transferable life skills.  In reading my work, it is my goal that you will consistently glean useful insights and build skills that enhance your ability to trade and make important decisions.

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I actively trade the futures and options markets, potentially taking multiple positions on any given day, both long and short. I also hold a more traditional portfolio of stocks and bonds that I do not "trade". I do believe the S&P 500 is priced for poor forward-looking returns over a long timeframe, and so my trading activity centers around a negative delta for hedging purposes.

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