Low Volatility of VIX and End of Quarter

S&P500 Took a Break after Its Upside Breakout

After the S&P500 Index (SPX) rallied through its long-term resistance the week before and further improved its high on Monday 19 March (the new post-Lehman highest close is 1409.75), it was drifiting slightly lower or moving sideways during the rest of the week. Interestingly, we saw the same intraday performance pattern throughout the week: SPX dropped before close, overnight, and in the first minutes after open the following day, and then it was growing during most of the main session. Overall, the week was slightly negative and S&P500 didn’t manage to hold the 1400 level (Friday close at 1397.11), but stayed well above its previous resistance, which was in the 1360-1380 area.

S&P500 Index, last 3 weeks, 45 minute bars

Low Volatility of Volatility (VIX Index)

VIX Index (the measure of implied volatility of 30-day SPX options, offcially CBOE Volatility Index) recorded an unusually low volatility (= realized volatility of SPX implied volatility) during the last 2 weeks. In the last 10 trading days, we have not seen VIX above 16.70 and only two times the VIX briefly dropped below 14.

VIX (CBOE Volatility Index), last 3 weeks, 45 minute bars

VIX Futures Curve: The New Front Month Falls Sharply

Last week, VIX March 2012 futures and options expired (last trading day was Tuesday). With the above mentioned stability of market’s volatility outlook (spot VIX), the futures curve was mainly driven by the expiration and rollovers. As April 2012 became the new front month, April futures were clearly the worst performing section of the futures curve. May and a few following months also declined more than one would have expected and as a result, part of the steepness of VIX futures curve moved from the short end to the middle of the curve.

VIX Futures Curve

The Week Ahead in Macro

US macro data release calendar is more interesting than the previous week, especially in the second half of the week: Durable Goods Orders on Wednesday; GDP on Thursday; Personal Consumption, Chicago PMI, and Michigan Sentiment on Friday.

Today (Monday 26 March), speeches by Bernanke (US Fed) and Draghi (ECB) are scheduled only a few hours apart.

End of Quarter

This week is the last week of 2012Q1. End of month and particularly end of quarter sometimes show very interesting and very unusual market action, as fund managers are trying to “window-dress” and improve the looks of their portfolios before writing monthly or quarterly reports to clients. Unless we’ll see a catastrophic fall this week, we can already say that the first quarter has been very generous to long-only equity investors.