It is not difficult to see what is driving global markets — money printing. At the first hint of an early halt (or at least slowdown) of US printing presses, the S&P500 reversed from being up nearly +1.1% to close down -0.83% on a spike in volume. Japan, whose printing presses are still running full steam, is up 1.8% tonight as I write this (+53% YTD!).

The VIX term structure barely moved today, which I think means two things:

1. There was no fear associated with today’s move — this could be part of a blip in what has been an extremely strong uptrend.
2. There was no fear associated with today’s move — this could be part of a blip in what has been an extremely strong uptrend.

In light of the YTD market advance, today’s pullback was tiny and it is way too early to read too much into it. The market action following tomorrow’s Initial Claims release, as well as Friday’s Durable Goods Orders will give us a lot more information.

One one side, the pace of the market’s recent advance is definitely not sustainable. On the other, market tops are processes, not points in time.

I used today’s decline to close out my short position on the Russell 2000. The objective of the trade was to capture a portion of a snapback to the short-term trendline (which is where we closed today). I entered the trade too early, but I still turned a small profit. Better than a kick in the pants. I am 100% cash for now.

Today’s charts are below, courtesy of StockCharts.com and VIXCentral.com.

Disclosure(s): None

Today’s volatility posts of interest:

• The VIX: It Could Get Ugly Soon by Adam Warner (Schaeffer’s Trading Floor Blog)
• Beware of 13th floor on $VIX Sonar Report today (Dr. J’s Blog)

Not a lot to report today. The VIX (spot) increased 2.7% today and VIX futures were up again, across the entire term structure. May VIX futures settle tomorrow morning. VIX and VVIX continue to move toward overbought territory. If so, I’ll close my short position on the Russell 2000 at a small loss and enter a new “short volatility” position.

The markets chopped around and ended basically flat, as one would expect the day before the Fed speaks (+ a day with no economic news). Rather than ramble on tonight…I’ll wait until tomorrow to see if there is more to discuss.

Today’s charts are below, courtesy of StockCharts.com and Trading Volatility.

Disclosure(s): Short the Russell 2000 at time of writing

First, three great posts from late last week that I did not have the chance to share over the weekend:

• Morgan Stanley: “Most Of The Buying Has Come From Shorts Covered Rather Than Longs Bought”  (Zero Hedge)
  
• Options Indicate Bull Market Stage 1 Underway (Zentrader)
• The Fed, QE, the Economy and Goldilocks 2.0 (VIX And More)

Next, a few new posts from today:

• 13 straddle holds on $VIX Sonar Report (Dr. J’s Blog)
• Not in Kansas Anymore (weekly note by John Hussman)

SPY tried to tack on another third of a percent today, but reversed, starting at lunch time and ended flat. IWM (Russell 2000) surpassed the 1,000 mark for the first time ever, but also reversed to end up only +0.17%.

The VIX (spot) jumped at the open and then chopped around for the rest of the day to end +4.66%. VIX futures were mostly up across the board. The VIX has been slowly rising out of oversold territory. It is neutral and has plenty of room to move in either direction. The VVIX is getting somewhat overbought in the short-term and could keep a lid on upward VIX movement.

The chart below, courtesy of DecisionPoint.com, shows the S&P500 P/E relative to its normal range between 10-20 (15 is “fair” value). This is the chart that has me most skittish. I don’t see to many other rallies with such a steep upward slope…and most seem to be followed by rapid corrections. Sure, investor irrationality can last a while, but fundamentals will take over eventually. The question is ‘when’.

The economic data calendar is quiet until Wednesday when we get Existing Home Sales and we hear from the Fed.

The rest of today’s charts, courtesy of StockCharts.com and Trading Volatility are below.

Disclosure(s): Short Russell 2000 at time of writing

A few volatility/market posts for your pleasure:

• 5 Theories Behind the VIX Stagnation by Adam Warner (Schaeffer’s Trading Floor Blog)
• VIX Godfather Dominic Salvino on Sonar Report today (Dr. J’s Blog)
• ETPs Turn to Selling Options to Generate Income (VIX And More)

Today we had the first down day in what seems like forever. Fairly choppy action on all of the major indices, as well as the volatility ETPs today. Even though the market is “due” for a pullback, it will not happen all at once…not when we’ve been hitting new highs like we have been recently.

*IF* (and that’s a big IF) the bull run is ready for a pause, we should expect more chop for a while, which means fading any moves to the extremes.

Today’s charts are below, courtesy of StockCharts.com and Trading Volatility.

Disclosure(s): Short Russell 2000

Volatility/market posts of the day:

• A Tale of Two Bulls (Six Figure Investing)
• Straddle Time of VIX Sonar Report (video via Dr. J’s Blog)

As you may have seen in my tweets, my ‘gut’ won today. I closed my ‘short volatility’ positions. I achieved solid performance on this trade (+7.4% for XIV long, +23.0% for UVXY short). I opened these trades during the market turbulence in mid-April when the VIX spiked to the upper teens and VVIX spiked to 110. These conditions continue to provide outstanding trading opportunities — “buy fear, sell greed”.

Late today, I also opened a short position on the Russell 2000. I chose the Russell 2000 over the S&P500 as it was showing it stronger intra-day reversal and even dipped into negative territory in the afternoon.

It would not surprise me at all to see the market continue charging ahead, but it is starting to look way too frothy to me. Even the folks at CNBC have become bullish on stocks and bearish on bonds and gold. Glad you all could join the party!

New Highs in the S&P500 hit +200 today, the highest reading in the data to which I have access…going back to early 2001. This is surprising, given that earnings have declined slightly in the last couple quarters. Eventually fundamentals will reassert themselves. At some point, such extremes become contrary indicators.

VIX term structure is still in moderate contango and shifted up slightly today. XIV has been mostly chopping around with a slight positive bias since April 24th (the opposite for VXX). I will await a better risk/reward opportunity.

Today’s charts, courtesy of StockCharts.com and Trading Volatility are below. Bonus chart from ChartOfTheDay.com via The Big Picture.

Disclosure(s): Short Russell 2000 at time of writing

Volatility posts of interest for today:

• Pop out of $VIX cash on Sonar Report today (Dr. J’s Blog)
• Sentiment Check: Do Investors Still Hate This Rally? by Adam Warner (Schaeffer’s Trading Floor Blog)
• Markets Upwardly Volatile (Volatility Analytics)

Just when I thought SPY might just increase +0.25% per day, it throws a curve ball and gains +1.08%. The continued strength of this market in 2013 is quite unbelievable. My “gut” keeps telling me to move to cash, but the market keeps powering ahead.

The #1 item on my “ways to improve my returns” list is to *not* bail out before the trend ends. …and this trend has clearly not ended, so…

VIX futures chopped around a bit today, but in general they slid down to the left along the existing curve (see chart below) — basically, your run-of-the-mill time decay.

For those expecting a massive drop in the VIX, remember that big, upside moves also equate to volatility too. In addition, historic volatility (last 30 days) may be keeping a floor under the VIX…for now. The volatility from mid-April will soon drop out of the calculation and historic volatility could drop quickly.

Today’s charts are below, courtesy of StockCharts.com and VIXCentral.com.

Disclosure(s): Long XIV, short UVXY and short VIX futures