Mixed Messages

Resilient equities with a divergent Mix

The weekend post included the usual week-over-week recap. Given that we also finished the month of July last Friday, here’s the monthly recap for last month. A few highlights: Bad month for Nasdaq and small caps; very mixed bag for international equity markets; bonds looked like tech stocks and provided no offset to soft equity returns; crypto rallied and it was better to be short vol than long vol.

Back to the day-to-day, the VIX Mix had another recovery yesterday with a finish at 59% with seven bullish components compared to three on the bearish end. Recall that last week was set up to be bipolar with the combination of the Fed meeting and a slew of major earnings reports. Add in the collapse of a large hedge fund and the bearish flush makes sense. On the other side, the speed of recovery has been impressive with the S&P 500 inches away from its all-time high.

Despite the recovery, the VIX Mix is mapping a cautionary trail relative to that of SPX. Not to get too TA about it, but the recent low for SPX was higher than the one in June while the recent low for the Mix was meaningfully lower than its dip in June. This suggests that investor sentiment continues to be cautious.

But you wouldn’t know that looking at the VIX futures term structure. We’ve got more than four points of contango from front to back and a very impressive premium between spot VIX and the August futures contract. Let’s just say that shorting August would be very profitable should spot VIX stay where it is for a couple of weeks. But that is not a recommendation.

So here we are. Equity markets continuing to be resilient, the volatility term structure flashing the safe sign, yet the composite VIX Mix still shaking off a rough couple of weeks. Can’t be surprised if we see some performance chasing in here. Just be reminded that August can be tricky.

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