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EZV Algorithms: Slightly Surprising VIX Metrics Today; Still Bullish But Wary

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Summary

  • I've been increasingly happy with the VIX metrics over the last couple of weeks, but today - not so much.
  • The Primary Slope unexpectedly turned negative, but remains above the trigger level; The Confirming Slope is now positive but not enough to be bullish.
  • It's not unheard of that the VIX term structure would move less contango when the S&P rises (only .03% today), but the move might be telling us something.
  • So, a slight margin above the trigger for the Primary Slope and a SHAPE metric which is in the safe zone stands against the next 'sell' call.
  • A week ago I would have thought the rally had a few weeks to play out; now I'm not sure.  No big deal; I'm not selling until the metrics turn.

I was planning to write a blog tonight, but I thought it would be a completely benign report about how solid all the metrics looked. They've been improving steadily for two weeks. It turned out to be a little different.

Here is the progression of VIX futures curves from the tail end of the last sell interval (August 27th) to yesterday (9/17), and then tonight (9/18). (I'll begin using 'VIX term structure' and VIX futures curve interchangeably):

VIX Term Structures

Source: Michael Gettings Data Sources: VIXCentral.com, CBOE

That move upward on the 18th is a bit of an anomaly in a slightly rising S&P market; the S&P was up only .03% today. Here is EZV Algorithms Dashboard. I've plotted the appropriate number of days for each slope this time.

EZV Algorithms Dashboard

Source: Michael Gettings Data Sources: Fidelity, VIXCentral.com, CBOE

Look at the 20-day plot of SHAPE metrics and you can see how bullish the trend was until tonight's data point. As I expected in last week's blog, the Confirming Slope has turned positive; however, it is still below the algorithm's trigger level.

What does it all mean? It could be that given the market's undecided behavior today, VIX traders are simply injecting a small dose of caution in the bullish mix, or possibly the change represents the start of a psychology reversal. Either way, the metrics will tell a story in coming days.

Housekeeping

I've submitted a proposal to start a Marketplace service with Seeking Alpha. I hope to hear back this week, and I'll keep you informed.

In the meantime, thanks for seeking out these blogs and thanks for following.

Analyst's Disclosure: I am/we are long SPY.

I trade all the tickers mentioned using the algorithm described. The artificial intelligence algorithm monitors daily performance and periodically recalibrates look-back horizons and triggers in a step-wise sequence. New calibrations are applied prospectively only, and never applied to the historical period from which they derived. The algorithm described and the discussions herein are intended to provide a perspective on the probability of outcomes based on historical performance. Neither modeled performance nor past performance are any guarantee of future results.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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