Markets will have to sustain another scary revelation

While the stock market is reacting to dollar strength on Tuesday, there will be another force hitting the economy later this year.

You are beginning to see this force in the large numbers of resignations in business and politics. Continue reading

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Dow volatility may soon rival bitcoin’s price moves

SPECIAL SATURDAY POSTING

What the hell is going on in the stock market this week?

The Dow Jones index had a 1,000 point or 3% ride on Friday before settling up 330 points up 1.4%. over the course of the 5 days of trading there was a 6% range from highs to lows. Continue reading

Plunge Protection Team leaving fingerprints on Tuesday’s market moves

There’s something rotten in the markets

On Tuesday morning the Dow futures was down 540 points just before the opening of trading. By 10:30 am the Dow index was miraculously down 3 points.

Over the course of the trading day the Dow moved 1,167. That type of volatility you only see on bitcoin. The index closed up 567 points, but the strange indicator on the Street was that the e-mini futures for the Dow were +920 at the close. These two numbers are normally in the same range and not 360 point difference.

Wednesday morning saw the e-mini futures down 250 points at 6 AM and improve to -86 points at 7:30 AM.

However, looking at the markets — including dollar strength, precious metals and bitcoin — it looks like there is much forced selling by funds that have to liquidate assets before announcing the fund is closing.

I wrote yesterday about the VIX index, which for much of the Trump presidency hovered around 10 suddenly exploded to over 50 on Friday.

I still believe the trigger for Friday’s 666 point decline was the release of the FISA memo by the House of Representatives committee. The idea of corruption and felonious behavior at the top of the Obama Administration  was hinted by all the congressmen who had read the memo.

So once the VIX started to rise on Friday, the funds that we caught short on the VIX had to liquidate other assets to cover the options contract. This selling cascade poured into Monday’s trading.

As I wrote yesterday, there were forces in the stock market futures to bolster Tuesday’s market open after Monday closed down over 1,000 points. My colleague John Crudele and I both see the Plunge Protection Team had a hand in bolstering Tuesday’s open.

 

Derivative on volatility index squeeze leaves blood on the Street

So what is driving the market turmoil over the last three trading sessions, it’s volatility.

No, not volatility per se, but the derivative option trades connected with volatility index.

The VIX — or fear index — soared more than 260% over last three days, and was over 50, which is the highest it’s been since 2008 financial crises.

So one of the derivative options off of the VIX is the XIV Exchange Traded Note, which was closed out today due to 95% losses on the VIX short squeeze.

Ok, now in English. If you wanted to bet against volatility rising you could take this note (XIV) and use 20-30 times leverage with no problem. Until there is one as it became a very crowded trade.

By Friday morning with hints of a memo coming out later in the day charging Dept. of Justice and FBI being crocked, the VIX started rising, which put pressure on the XIV.

By Monday morning when options trading opened up, the VIX was soaring. By noon there were signs of large funds imploding over being squeezed by their XIV positions and began selling the kitchen sink to get out of the trade.

That’s when the Dow was crashing. Hitting -1,500 points around 1PM Monday. As I wrote at the time that the Plunge Protection Team stepped in to bolster the market and cut the point loss in half in the next 30 minutes.

I believe we will hear Wednesday which funds were caught up in the XIV carnage and will need to close down. Given the dramatic moves — reminiscent of bitcoin pricing in December — there must be some blood on the street.