Rollover week and slow days

This was the beginning of rollover week when the June S&P contract becomes the front month and traders are moving from the March contracts to the June contracts. The effect of this is usually reduced volume, due to the trading being split between two contracts combined with choppy trading. Well the rollover week lived up to its reputation as this week was extremely choppy, with light to anemic volume during the middle of the day – one of the worst we have seen in a long time.

The market grinded higher most of the time, except on Tuesday and Wednesday where it was clear that the Buy Programs were in place. Tuesday and Wednesday were straight up form open and looked like carbon copies of each other. After the initial big pops, the High Frequency Traders (HFT) created a choppy environment with sleepy trading & little movement, then bam out of nowhere a big move/break out, no wait, a fake out. So, this made for very frustrating trading. During the day Tuesday and Wednesday it was evident that these HFT programs were running as orders to sell 3000 contracts on the books were being overtaken by 50 or even 0 buyers. The S&P e-mini’s would hardly go down one tick! The buyers bought everything and the orders were obviously off the books.

Short term – over the last several weeks - we continue to be overbought with very little block selling and 9 up days in a row through Thursday. Friday hardly being a down day at all. VIX continues to be very low. Some people think the VIX continues to under price the risk in the markets and I ran across an interesting article that describes this nicely. From EWI.

http://www.elliottwave.com/freeupdates/archives/2010/03/11/All-Is-Quiet-On-The-Global-Front----For-Now.aspx


All Is Quiet On The Global Front -- For Now
Volatility index VIX may be telling us something important.

The financial news these days makes it clear that the world economy is on shaky ground. "China's bubble"; "high U.S. unemployment"; "uncertainty about interest rates"; "sovereign debt problems in Greece"... You'd think that in this environment, the financial markets would be as jittery as some of the commentators are. But they aren't.

The DJIA, the world's benchmark stock index, has rallied since a February 5 low. The Chicago Board Options Exchange’s VIX index (the "fear" index) also shows that the markets are not nervous. The British Financial Times picked up on this on March 8 (italics added):

The Vix index, a measure of expected market volatility, hovered around its lowest levels for the year at 17.63... The Vix has closed down 16 out of the last 18 sessions -- we haven’t seen it do that in such a consistent manner since 1997. [The low level] suggests that the Vix is not fully reflecting the amount of risk in the market right now...

We've been here before. In May 2008, three months before the AIG and Lehman troubles shook Wall Street, our monthly Elliott Wave Financial Forecast (EWFF) reported:

High volatility tends to follow low volatility, and volatility is always greater on the downside. The "impending ‘heart attack'" should generate some of the most pronounced volatility in history.





The "heart attack" that stocks suffered in 2008-2009 pushed the VIX to an all-time high of 89.53 (October 2008). Our June 2009 EWFF picked up the volatility theme:

After surging to an all-time high of 89.53 in conjunction with the end of wave (3) of 1 in October, the VIX fell to below 30 last week... reflecting a lessening fear of falling stock prices. Odds are that the VIX will fall into the low 20s or possibly even into the teens prior to the end of the current bear market rally.


That brings us to the recent 17.63 VIX reading -- "the teens," just as the EWFF expected. By itself it's no guarantee of anything; no indicator is. But when you see the DJIA's latest Elliott wave count and other technical evidence, the picture gets clearer.
We had a tough trading week with the choppy environment and apathy in the markets. This environment made it very difficult to gain any edge when placing a high probability trades, as this became irrelevant.

On the Treasury bond side, looks like all is well again with a strong auction and an A+ rating from Rick on CNBC. A big change from the last auction that I think got an F and had a high bid to cover.