The collision of global markets and social mood

Monday, May 19, 2014

Hints From Abroad And Wasting Money On Insurance

Recap of Friday morning's take:

"Sticking with the wedge scenario, a larger bounce could be expected before another sharp decline possibly below 1850 before a final three-wave rally to new all-time highs.

A shallow bounce would be cause for immediate concern. However, it could mean a few more subdivisions down to 1850 before an even larger bounce. The point is that this scenario projects a larger bounce soon.

A decline below 1814.36 would immediately negate this scenario."
. . . . . . . . .

All of the above is still on the table. The larger bounce may have started, but it took all day Friday to achieve a shallow retracement of the decline from 1902.17. Either price continues higher or it rolls over. 1814.36 is expected to hold. If it does not, the top could be in.

However, the FTSE and the DAX may provide some hints. Both seem to have traced out corrective declines as the the world's major markets have moved in sympathy with the S&P. Both have wedge structures similar to the S&P. Both look primed for one final high.

Even with futures down this morning, markets feel bouncy. The VIX feels close to a major low. Often such lows precede tops in Equityland.

Speaking of the VIX, Robert Prechter published another excellent Elliott Wave Theorist last week. In it he mentioned a Wall Street Journal story about The Death Of Volatility. Actually it seems Bloomberg was onto it first. Then Marketwatch. Then the WSJ.

A financial media hat trick such as this is worth taking note of. Vol is so low that people think it's become irrelevant. This is awesome news as a buyer of it. Here were some of my favorites, with emphasis added:

From Bloomberg:

"So what killed volatility?"

From Marketwatch, quoting Nicholas Colas, chief market strategist at ConvergEx Group:

"Central bank actions have essentially become a volatility put . . . In non-options jargon, it means that central banks now stand perennially at the ready to address any systemic volatility quickly and with overwhelming force."

From the WSJ:

"Fear has left the building.

Wall Street’s so-called fear gauge has fallen so far that at least one market watcher wonders if structural, permanent changes have taken place in the market."

So vol is dead. Fear has left the building. And it's different this time.

“We are not seeing any sort of major hedging activity,” Steven Rosen, head of single-stock and ETF volatility trading at Societe Generale in New York, told MoneyBeat earlier this week. Lately, for clients, buying insurance “just seems like a waste of money. Every selloff we have, you only see money come in to buy the market higher.”

I love it. Insurance always seems like a waste of money . . . until you need it.

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