What a Difference a Year Makes

Expiration Week May Bring Pause

This week brings us the first big expiration of the year; a quadruple witch comes Friday Mar 19. We've discussed the relative importance of this quarterly ritual. The modest volatility of the market tells us not to expect much in the way of big movement, at least early in the week. Why is that? The VIX options actually expire on the open Wednesday, April becoming the front month on that day. Currently there is no premium difference of consequence in the March VIX futures vs. the cash, however a sizeable premium exists in April and May. This steepness can be considered bullish right now. With the SPX near the edge of the top of a big range I wouldn't be surprised to see some backing/filling early in the week. Let's not forget a Fed meeting is on tap, important economic numbers are due out and a trickling of earnings are on the way.

S&P 500 Daily Chart


VIX Daily Chart

What a difference a year makes. It's been about that time since the low was reached on the SPX, circa 666. Remember that time? Bank stocks in the tank, commodities reeling, gold on the ropes and fear rampant. Stop for a minute and think about how you felt back then. Accounts much smaller, a new President with seemingly empty promises, a Fed that was determined to print its way out of the problem and perhaps destroying the currency. It was Armageddon alright! But stepping back a bit was the fear at the lows equal to the fear shown just five months earlier? According to the VIX it was not! In fact, we saw volatility drop of nearly 30% from Nov to Mar as the markets dropped 40% or more (see chart). Since the low in March 2009 volatility has dropped more than 65%. Fear is moving to the side as 'issues' are resolved. We must be cognizant of the current complacency and expect sharp selloffs. But for now the trend is in place.

VIX During the 2008 and 2009 Spikes:
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