Train Kept A-Rollin'

Look both ways before crossing the tracks

The first chart below has racked up more than 55k views on X/Twitter. You never know what will strike a chord with the #FinTwit community. If you didn’t see it, the red line maps the ratio of VX30 to spot VIX. VX30 is a measure of constant maturity VIX futures calculated using the front two monthly contracts weighted by days to expiration. As highlighted, we finished yesterday with this relationship at the 96th percentile of values that go back to the introduction of VIX futures back in 2004. We are stretched! That doesn’t mean that stocks will crash from here. Conditions may be “overbought” but they can stay that way for a while if only to punish the bears.

This is one of those times to be very mindful around the railroad tracks. I’m reminded of a song written in 1951 by a gentleman known as Tiny Bradshaw. It entered the rock and roll era courtesy of The Yardbirds in 1965 when Jeff Beck was holding down guitar duties for the band, having replaced Eric Clapton. Aerosmith later recorded their cover and Joe Perry tore it up very nicely. But my favorite recording came at the 2009 Rock and Roll Hall of Fame concert - the year that both Jeff Beck and Metallica were inducted. They were joined by Joe Perry, Jimmy Page, Ronnie Wood, Flea and former Metallica bassist, Jason Newsted, for this killer version of Train Kept A-Rollin'.

The VIX Mix train kept rollin’ as well yesterday with another bullish reading at 75% with 14 of the 17 components also bullish. Sure, it was one point lower than the day before, but that is in the category of noise.

That gives us three green shoots in a row and 4 out of the last 5 days. Equity futures are a little mixed this morning and it wouldn’t be surprising if there’s no big move either direction on a quiet Friday in August.

One reminder before we go. The August VIX futures contract will expire next Wednesday morning. It will follow spot VIX like a baby chick following its momma between now and then. It’s time to start watching how the September contract behaves to get a better sense of what traders are thinking.

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