Monday, September 8, 2014

HYG and $VIX show warning signs

HYG is doing that thing again:

HYG has broken below its SMA(50) on a few days of selling.

The last time junk broke down, the lamestream media freaked out with stories of impending doom for weeks - until junk had recovered 80% of its July drop, remember? So maybe this new downward spike can act as fuel for another small equity correction.

And everyone seems to be wanting a September correction anyway. So I guess that's what we'll have.

And here's $VIX:

It began a slight upward trend 2 weeks ago, but I was ignoring it til now. Now, however, it's moved beyond its short EMA and seems to want to break through the descending +2SD Bollinger line. Note that August printed a higher low in $VIX from July - not that that matters at all for an index of downside protection, but dumbass chartists will be dumbass chartists, right?

Put those two together and I guess we get a correction. Certainly that's how the algos will trade it, right? I man, what other inputs can you use for a downside risk model?

I'll be interested in whether we can see HYG below $91.50 and $VIX above 17; if we can get both of those conditions, people might really start to freak out. A freak-out like that will set up a fantastic $VIX short opportunity for me.

The US economy is not doomed and the only reason to not be long is because you want to get longer lower.

But for now, I've closed half my US equity positions for small profits, to take some risk off the table. We'll see if that was a good idea or not.

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