S&P 500 is up almost 4% from “Trade War” lows we saw last week. Back then we pointed out in our article, “China Fear is No News” , that:
A common tendency among investors is to get emotional as they read on hot topics such as the China Trade War situation. Getting fearful about China here is a late trade.
If you were fearful back then, it seems rather late getting excited about longs at these levels.
S&P 500 is up 100 points in less than a week and we are very close to big resistance levels, 2800. The Trade War bounce trade should be properly managed here.
NASDAQ has been ripping higher as well. After reaching the 50 day average support, the index managed climbing almost 5% in a few sessions. We are now reaching big resistance levels. Tactical Trade War longs should be adjusted accordingly.
Euro Stoxx 50 continues trading in the downward channel. We can clearly see it has been turning well in the channel, both on supports and resistance levels. We believe shaving off bounce longs looks attractive here. Note the 50 day average resistance a little higher.
Chasing longs here is late.
What’s down almost 40% since the recent peak “panic” China Trade War levels? VIX.
In our July 2nd post we explained what and how volatility was pricing risk:
Is it time to panic? Well, that nobody knows, but given the fact volatility is up substantially over the past weeks one really needs to discount rather bad times going forward in order to buy volatility at these levels. Volatility is a mean reversing asset, let’s not forget that.
A few weeks ago VIX was trading at low 11 while now it trades close to 18. For the non professional trader it is worth pointing out that volatility is proportionate to the square root of time. This simply means that an approximately 1% move in S&P 500 corresponds to 16% implied volatility. As VIX approaches 18 the market basically starts discounting approximately 1.15 percentage moves daily. This is surely possible, but if it is probable is another thing….
Buying volatility here outright is a rather late trade unless you really fear an imminent market collapse or you need to hedge your book desperately.
Buy volatility when you can, not when you must.
VIX is down substantially, and given the fact we are about to enjoy earnings season soon, volatility is starting to look like a buy at these levels.
V2X, Euro Stoxx 50 volatility index, is down almost 30% from recent highs.
Source: charts by Bloomberg