Running “The Program”
As the dips keep getting shallower and shallower and market projections get more bullish by the day (see Goldman’s capitulation today) the running volatility compression program continues to be the cornerstone of market gains.
Just last week we got another taste of the precision with which the program is run:
$VIX: Trend line rejection. Perfection.
KILLER chart and has been for 2 years.
Long time followers know what I'm talking about. I've discussed this chart at length all year.
I reiterate: This pattern will eventually break higher. pic.twitter.com/MHI20dIZxk
— Sven Henrich (@NorthmanTrader) November 15, 2017
The result: As so many times before, nothing but gains since the trend line tag. Indeed the lower trend line now appears to be the must hold for what bears remain in markets:
Why is all this relevant? For one it helps identify risk/reward at any given time. But more importantly the trend lines keep narrowing. At one point the program ends.
Global markets have ended all forms of 2 way price discovery as volatility compression has continued unabated:
Note how historically unprecedented the complete elimination of 2 way price discovery has become and also note the structure in context of the volatility compression. It is dependent on it.
What is Wall Street telling eager ETF buyers right here and now? Nothing but upside:
Markets no longer correct and no longer bear (pun intended) any risk. Goldman calls it “rational exuberance’.
I call it what it is: A bubble blown to extremes by trillions of ongoing central bank intervention and record ETF inflows to the tune of $400B this year, a QE program on its own if you will.
Hardly noted: Corporations have reduced the amount of money allocated to buybacks, just as retail is drinking the Wall Street cool aid of nothing but milk and honey coming.
Bubble away. Until the program changes.
I’m watching closely for signs of a coming change in the program. I suggest you do too. Or you can listen to Goldman. Up to you…