Bonds Breaking Out & Volatility Breaking Down – WTF?? (by Leaf_West)

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Why are bonds breaking higher today?  When you look at the relative performance of Bonds vs Equities it doesn't look like the "risk trade" is one that is getting a lot of action here.

Add to that how defensive sectors like consumer staples and health care have been doing lately (all the way back to the Feb 18th market peak), and something is starting to smell a little fishy.

TLT_April15, 2011_Daily

TLT_April15, 2011_Daily_vsSPY
TLT_April15, 2011_Daily_XLPvsSPY
TLT_April15, 2011_Daily_XLVvsSPY

Volatility

Much has been talked/written about the $VIX volatility guage today as this index dropped below the $15 level today.

It seems to me from what I have read is that $VIX is at very low levels not so much because of no fear in the market but because market players are busy buying longer-term options and selling shorter term options.  I'm not sure if that is the sole reason, and I'm not sure that will make a difference when we have the next market pull-in.

Interestingly, if you look at the daily chart of the $VIX, the last time we were at these levels was on option expiry date in February (the 18th).  That turned out to be the market top so far.

I took advantage of these low levels to add some VXX to my trading account when it crossed above the 20EMA on the 5min chart this afternoon ($27.49).  VXX is a tough vehicle to trade but it is a good insurance policy over the weekend.

Cheers

VIX_April15, 2011_Daily
VIX_April15, 2011_Weekly

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