It's official. The VIX just closed lower than the 2022 low, and way below the long-term average of 19.67 since its inception in 1990. It is still far from the historical low of 9.14 though. Before you treat the VIX like a stock and think that now is a good buying opportunity, note that the VIX is not tradable. You can only trade VIX futures. An example would be the May contract which is currently priced at 19.55. This represents a premium of 18.8% from spot VIX. This means that spot VIX would have to increase by 18.8% for the trade to just break even. If VIX stays at the current level, you will lose close to 16% when the futures contract expires. Those long volatility ETFs like VXX and UVXY also suffer from this decay because the issuer also uses futures to replicate the ETFs. Volatilit

The VIX keeps going lower. Are we entering a new low-vol regime? While no one can say for sure, we can look to history as a guide. Ideally, we should look at the historical implied volatility, but VIX only started in 1990. Hence, I used realized volatility of the S&P 500 as a proxy since it goes back to the Great Depression. I define high vol as anything above 20 and low vol as below 20. The Great Depression was indeed a scary period, spending most of the time in a high-volatility regime. But in modern times, we are in a low-volatility regime most of the time. However, we still get the occasional vol spikes that can rival the Great Depression. $Cboe Volatility Index(VIX)$ $

The yield pick-up from short-vol ETFs is high now, thanks to the deep contango VIX term structure. VIX looks like it wants to break below the 2022 low. Something to note if you are long volatility. $Cboe Volatility Index(VIX)$ $ProShares Short VIX Short Term Futures ETF(SVXY)$ $Barclays iPath Series B S&P 500 VIX Short-Term Futures(VXX)$

Two things to highlight from today's CPI release. 1) Actual CPI has not come in below market forecast for some time. The last time was in November last year. 2) The gap between CPI and Fed Funds Rate has now closed. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

Although I called the end of the inflation trade in the middle of January, I think the Great Normalization theme still has legs. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 7-10 Year Treasury Bond ETF(IEF)$ $SPDR Gold Shares(GLD)$

If you ask a day trader, he will tell you to close out all your positions by the end of the day. And this is not without good reasons. Because a day trader is focused only on the short term. For them to make money, they need to be able to monitor and respond quickly to the markets. Thus, holding overnight risk is, for the most part, a strict no for them. But is an overnight risk something that terrible? Well, not if you are looking at the long term. In fact, if you don’t hold positions overnight, you are missing out big time. Your Investments Grow The Most After Market Closed I know this might sound incredulous but the bulk of your returns actually come from moves that happen overnight. To be clear about what I meant, let’s first talk about daily returns. Daily returns are measured from th

I hope everyone is enjoying the long weekend. I spent some time doing a little study on the S&P 500. Ever since the S&P 500 breached a 20% drawdown, entering a technical recession, it rebounded >15% from the low only to make a lower low. I wanted to know if something similar happened in the past. I found that outside of the Great Depression, there were 12 instances of the S&P 500 breaching a 20% drop, followed by a rebound of >15% from the low. Only 3 resulted in a subsequent lower low, including the one we saw recently. The rest all marked the start of a new bull market. As for the 2 periods that are similar to today, one is the Tech Bubble and the other is the Great Financial Crisis. For both periods, the NBER declared an official recession soon after the lower low wa

Four broad-based ETF price charts that support the Great Normalization macro theme. What is the Great Normalization? It is the unwind of the Great Inflation theme of 2022. $SPDR S&P 500 ETF Trust(SPY)$ $United States Copper Index Fund(CPER)$ $iShares iBoxx $ Investment Grade Corporate Bond ETF(LQD)$

We are starting to get some data that indicates the economy is weakening. The latest is the worse-than-expected unemployment claims. However, calling a recession remains tricky as even the National Bureau of Economic Research has a mixed record in the past. To be fair, their job is not to forecast but to report on the past. On that count, their record is perfect. The message is that the future is always more unpredictable than we think. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

There has been a bit of divergence in the performance of the three US indices lately. Hence I looked at the historical performance going back to 1992, which was as far back as DJIA goes on Yahoo! Finance. If history is any guide, below are some observations: 1) DJIA and Nasdaq moved in lock-step before quantitative easing started, except for the tech bubble period. 2) Nasdaq can potentially close the gap with the other two indices, although the recent inflation crisis failed to close the gap. This is taking reference from the bursting of the tech bubble. 3) Surprisingly, DJIA outperforms S&P 500. This could be due to a value bias in DJIA. It is well-documented that the value factor outperforms over the long run. $SPDR S&P 50

Yes, tech stocks have outperformed significantly, but the broader stock market has also done well despite the banking crisis. The market thinks this crisis is contained within the financial sector. It could be because a high-interest rate problem can be resolved, unlike a bad credit problem. $Financial Select Sector SPDR Fund(XLF)$ $Real Estate Select Sector SPDR Fund(XLRE)$ $Technology Select Sector SPDR Fund(XLK)$

The macro theme last year was inflation. Somewhere in November 2022, it shifted into a new regime. For the moment, it looks like it could be a recession. In this new regime, bonds and gold did well. Commodities suffered. These asset classes are behaving as expected under a recession. What is not clear is what has been happening to stocks and USD. Typically, stocks should be suffering, and USD should be strong. A possible complication could be how the Fed is going to respond. The market expects the Fed to cut rates. This is expected to boost stocks and weaken the dollar. In other words, despite the Fed's open resolve to fight inflation, the market doesn't buy it. It could be either because the market thinks inflation is no longer a problem or the Fed will cave in if more banks fail.

With the latest 25bp hike, the gap between CPI and Fed Funds Rate has become negligible. Note that Mar CPI is based on Fed's Nowcast. Actual CPI to be confirmed next month.$SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

We are just hours away from the FOMC statement, and the market is all but certain of a 25bp rate hike. Jerome Powell is not likely to hike 50bp when the banking crisis is still fresh in peoples' minds. If anything, he might just pause and observe how the crisis develops. Hence, there is a greater potential surprise in the form of a pause in rate hikes.$SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

One of our essential risk management tools is multi-asset class diversification. Hence, we watch cross-asset correlation closely. We've highlighted before how cross-asset correlation peaked last year and coming down. Today, gold's correlation with the S&P 500 has gone below its long-term average. Bond's correlation with the S&P 500 should also do that soon. Correlation tends to oscillate around the long-term average, so we expect the cross-asset correlation to overshoot to the downside.$SPDR S&P 500 ETF Trust(SPY)$ $iShares 7-10 Year Treasury Bond ETF(IEF)$ $SPDR Gold Shares(GLD)$

𝙒𝙚𝙚𝙠𝙚𝙣𝙙 𝘾𝙝𝙖𝙧𝙩𝙨 & 𝘾𝙤𝙢𝙢𝙚𝙣𝙩𝙖𝙧𝙞𝙚𝙨📈📊 Important week ahead so more charts than usual. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

Looking at relative performances is a quick way of seeing what is happening to markets. 1) I have been saying this for a while but this month is a clear sign that multi-asset solutions are working again. 2) The current risk-off situation is still mainly confined to the financial sector. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

⭐𝙏𝙝𝙚 𝙙𝙞𝙛𝙛𝙚𝙧𝙚𝙣𝙘𝙚 𝙗𝙚𝙩𝙬𝙚𝙚𝙣 𝙎𝙑𝘽 𝙖𝙣𝙙 𝙇𝙚𝙝𝙢𝙖𝙣⭐ The current failure of SVB has everyone worried about a repeat of the GFC in 2008. Allow me to share the main difference between SVB and Lehman since I've traded through 2008. SVB is not an investment bank. It is a traditional bank that takes deposits and makes loans. The unique feature is that it mainly serves silicon valley startups. Lehman is an investment bank. It acts as the counterparty for many financial institutions like big hedge funds and other banks. As such, if Lehman fails, it would set off a domino effect for those counterparties. This is exactly what happened when the Fed allowed Lehman to fail. It is also difficult to bail out Lehman because it would mean the Fed had to step in for Lehman to make good all those trades with other par

Feb CPI will be released tomorrow at 8.30 am NYT. The market's forecast is 6% while Cleveland Fed's nowcast is 6.2%. Bear in mind that the nowcast for Mar CPI is below 6%. This is even before the recent banking crisis. $SPDR S&P 500 ETF Trust(SPY)$ $iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR Gold Shares(GLD)$

With the regional bank SVB shutting down, here are some charts with commentaries for the weekend. Be prepared for volatility but stay on track with your investment approach! 🚀🚀🚀 $SPDR S&P 500 ETF Trust(SPY)$ $SPDR Gold Shares(GLD)$ $iShares 20+ Year Treasury Bond ETF(TLT)$