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Ahead of the Curve provides you with analysis and insight into today's global financial markets. The latest news and views from global stock, bond, commodity and FOREX markets are discussed. Rajveer Rawlin is a PhD and received his MBA in finance from the Cardiff Metropolitan University, Wales, UK. He is an avid market watcher having followed capital markets in the US and India since 1993. His research interests includes areas of Capital Markets, Banking, Investment Analysis and Portfolio Management and has over 20 years of experience in the above areas covering the US and Indian Markets. He has several publications in the above areas. The views expressed here are his own and should not be construed as advice to buy or sell securities.

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Time Series Analysis with GRETL

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Showing posts with label vix. Show all posts
Showing posts with label vix. Show all posts

Friday 29 April 2022

Jaws GAP - India Vix vs US Vix

There is quite a bit of underperformance in Indian market volatility compared to US market volatility since the COVID-19 crash as indicated by the jaws gap below. This should resolve soon with an upcoming spike in Indian market volatility and a significant fall in the Nifty Index.


 

Wednesday 11 August 2021

Inter Market Divergences

 With the stock markets hitting new highs some inter-market divergences have started to appear. Let's take a look at a few of them. The first chart looks at the SPX versus the Transports. You can see the marked divergence in the last few months with transports not confirming new highs in the SPX:


Next, we look at SPX vs Gold. Gold is a big beneficiary of liquidity in the system and often leads the SPX. Again there is a notable divergence developing:



Taking a look at SPX vs Crude shows a smaller divergence that has developed recently:


The AUDJPY currency cross is a good measure of risk appetite. Note the marked divergence developing:


Lastly, the SPX vs VIX chart reveals the VIX not making new lows for new highs in the SPX:


While these divergences may not matter with central banks flooding the markets with liquidity, once the liquidity shows signs of reversing, they may prove useful in determining what lies ahead.



Wednesday 27 March 2019

Indicators that Matter

There is a plethora of indicators to track while evaluating financial markets. Here are some important ones:

1) The Chinese Yuan:

The Chinese Yuan is often a proxy for the risk on trade. Periods of strength in the Chinese Yuan as seen in the last 3 months, have often been accompanied by up moves  in risk assets such as stocks, commodities and emerging market currencies:

source:investing.com

chinese yuan
2) The S and P 500 Price to Sales Ratio:

This is a key valuation measure and price to sales ratios greater than 2 have often symbolized over valuation while ratios lower than 1 have produced undervalued buy opportunities:

source: multpl.com

valuation

3) The Yield Curve:

The yield curve is a very reliable economic indicator and an inverted yield curve like we have now has often been followed by recessions or periods of rapidly slowing growth, while an upward sloping yield curve is often indicative of an expanding economy:

source: ETF Trends
yield curve

4) CNN Money's Fear and Greed Indicator:

This is a sentiment indicator which is a combination of several sentiment indicators and indicates whether market participants are fearful or greedy:

source: CNN Money

fear and greed

5) The Skew Vix Ratio:

This indicator is another sentiment indicator and values below 5 tend to mark panic bottoms while values above 15 tend to mark complacent tops. This ratio has been making lower highs and lower tops of late suggesting that there may be one more panic bottom in the not too distant future:

source: Stock Charts

skew vix ratio


Thursday 16 August 2018

Why a Massive Selloff in Risk Assets Could be Just a Few Days Away?

First market breadth is diverging with the New 52 week high low indicator not confirming the recent retest of highs in the S and P 500:

S&P 500 vs S&P 500 Stocks at 52-Wk Highs Minus Lows (S&P 500 NH-NL)

High beta segment of the market such as the Nasdaq is beginning to under perform the broader market much like in 2000:

S&P 500 vs Nasdaq Relative to its 200-Day Moving Average (Nasdaq R200)

The Skew Vix ratio as shown on stockcharts has spiked into double digits recently suggesting high tail risk, which is often a precursor to rising volatility and a risk off trade set up:

skew vix ratio


















All this as we are in the middle of an emerging market currency crisis much like in 1998 unsupported by a tightening FED:

Friday 23 March 2018

Stock Market Panic Just Beginning?

Markets have been taking a turn for the worse on fears of a global trade war. A look at the Fear and Greed Index computed by CNNMoney shows that investor sentiment is hitting record lows:
fear and greed


However the Vix is yet to take out the February highs and suggests that there is no major panic yet:

volatility vix


Also the NYSE McClellan Summation Index (courtesy stockcharts) has just begun breaking down again following the recent rally and has more room to fall suggesting more selling ahead:

summation index


Taken together we probably are headed for more selling and panic that should take us a lot lower to the major break out zone of the S and P 500 near 2400 first before any relief rallies occur.

Saturday 10 March 2018

Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning March 12

Indicator
Weekly Level / Change
Implication for
S & P 500
Implication for Nifty*
S & P 500
2787, 3.54%
Bullish
Bullish
Nifty
10227, -2.21%
Neutral **
Bearish
China Shanghai Index
3307, 1.62%
Bullish
Bullish
Gold
1324, 0.05%
Neutral
Neutral
WTIC Crude
62.04, 1.29%
Bullish
Bullish
Copper
3.14, 0.37%
Neutral
Neutral
Baltic Dry Index
1201, 0.42%
Neutral
Neutral
Euro
1.2307, -0.09%
Neutral
Neutral
Dollar/Yen
106.77, 0.98%
Bullish
Bullish
Dow Transports
10740, 3.94%
Bullish
Bullish
High Yield (ETF)
36.09, 0.25%
Neutral
Neutral
US 10 year Bond Yield
2.89%, 1.30%
Bearish
Bearish
Nyse Summation Index
164, 1023.97%
Bullish
Neutral
US Vix
14.64, -25.27%
Bullish
Bearish
Skew
128
Neutral
Neutral
20 DMA, S and P 500
2714, Above
Bullish
Neutral
50 DMA, S and P 500
2742, Above
Bullish
Neutral
200 DMA, S and P 500
2571, Above
Bullish
Neutral
20 DMA, Nifty
10420, Below
Neutral
Bearish
50 DMA, Nifty
10606, Below
Neutral
Bearish
200 DMA, Nifty
10140, Above
Neutral
Bullish
India Vix
14.52, 3.22%
Neutral
Bearish
Dollar/Rupee
64.93, -0.39%
Neutral
Neutral


Overall


S & P 500


Nifty

Bullish Indications
10
6
Bearish Indications
1
6
Outlook
Bullish
Neutral
Observation
The S and P 500 rallied and the Nifty fell last week. Indicators are mixed.
The markets have made important tops. Time to watch those stops.
On the Horizon
New Zealand – GDP, China – Industrial production, Euro Zone – German ZEW economic sentiment, CPI, Switzerland – SNB rate decision, U.S – CPI, Retail sales, Oil inventories, Canada – Poloz speech
*Nifty
India’s Benchmark Stock Market Index
Raw Data
Courtesy Google finance, Stock charts, investing.com
**Neutral
Changes less than 0.5% are considered neutral


stock market signals march 12
Image from marketwatch.com

The S and P 500 rallied and the Nifty sharply under performed last week. Indicators are mixed for the upcoming week. Quantitative tightening by the FED is yet to be priced in fully. The markets are still trading well over 3 standard deviations above their long term averages from which corrections usually result. Divergences in high yield and surging bond yields are flashing warning signs. An interest rate shock can’t be ruled out. Indian market volatility is still below US market volatility so there is complacency and some catch up left on the down side. The critical levels to watch are 2800 (up) and 2775 (down) on the S & P and 10300 (up) and 10150 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets. You can check out last week’s report for a comparison. Love your thoughts and feedback.

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My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%

My belief is that stocks are relatively overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.