Monday, August 11, 2014

And pursuant to the previous, a warning about $VIX and XIV

By the way, pursuant to the previous on the last time we had a horrible crash on insanely high valuations and taper and dooooom and yadda yadda, back in Feb and 150 S&P points ago:

Hm. Seems this time around was even less of a dive.

Maybe that's because in January (if y'all remember) we were getting clobbered by Arctic low after Arctic low, the US was shut down all the way to Georgia cos the dumbasses are too dumb and too fat to use a fucking snow shovel, rail traffic was down hard (according to Warren Buffett himself, and he should know), and the Zerohedge crowd was crowing about the coming market crash. Cos blah blah CAPE ratio blah blah downward earnings revisions blah blah taper tantrum.

So maybe this time is slightly different, thus the bottom is slightly shallower.

Or maybe shit all turns around and dives further tomorrow.

But anyway, if you think this time is anything like the last time, here's a $VIX warning:

$VIX, after recovering from the early Feb spike and getting back below its short-term EMA, remained steady (not descending) til the good economic news started coming out in April.

And that has implications if you've gone and bought XIV or

It seems that a short-vix ETF does actually bleed your money away (slowly) if $VIX is staying steady and not descending. See the Feb-Mar action above.

I got my HVI at an average price of around $29.50, which equates to XIV of around $37.50, so I'm okay; even if this above scenario replayed exactly I could expect XIV to get back above that SMA(20) (maybe $40-$41 by then) before it rolls over. After all, we're still recovering from a $VIX spike and already I'm in the black. The benefit of shorting $VIX at +3.5SD, I guess.

Then again, what would the reason be now for two months of a level market? In Dec-Apr the economic news was crap (unless you were reading NDD's weekly indicators); this time around the US economy is fine.

I guess as long as Russia doesn't invade the Ukraine we should be okay.

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