On Thursday of last week. I did an interview with Charles Payne on Fox Business, along with Katie Stockton, CMT, discussing several themes within the market.
My focus was on while breadth has been improving for large caps, we still have poor performance in the Russell 2000 and how I’m watching to see if R2K breaks out of its multi-month consolidation and shows improvement in relative performance as a potential catalysts for equities to continue higher in the back-half of the year.
I also discussed how we’ve gone 58 weeks without a move under the 40-week moving average, one of the longest streaks since 1950.
Below are some of the charts I referenced in the interview…
Another chart that I find interesting right now, but didn’t get to mention on-air, is the recent correlation shift between VIX and VVIX (VIX of the VIX). Typically these two move in near lockstep with one another, but recently while the Volatility Index has been drifting lower, VVIX has not. The 5-day correlation is now at its lowest level since April.
As realized volatility moves lower (almost in single digits), systematic traders have continued adding long exposure and the uptick in the VVIX could be hedging behavior through VIX options of those long trades.
Charlie McElligott of Nomura noted recently that 1-month SPX PUT SKEW is at the 98th percentile and 6-month at the 99th, lending also to the idea that while bulls seem in control there’s still some heavy hedging activity taking place right now—which can be seen in the chart below of the correlation of VVIX to VIX. As you can see on the chart, prior drops in correlation have historically led to rises in the volatility.
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