It looks like I still got it. I was right with my revised date range last Friday and yesterday. My date range for a VIX jump was Aug 10 to Aug 12. I say revised because my original dates were Aug 6 to Aug 10. However, the VIX algorithm last week showed me that supports have changed, so I had to adjust accordingly. It was worth it.
The VIX broke the local wedge resistance and closed above it. The VVIX is breathing life again. That said, this volatility jump will be short lived as usual. The MCI and NFCI indicate that liquidity is at the highest levels since November 2019. This strengthens major supports on the ES and cuts short of the volatility jumps.
The pullback on the ES was to be expected if you look at how much time there was left on the VIX. Being at the end of the wedge, the VIX was ready to jump. The VVIX was also above 110, so volatility hasn't ended yet. Not to mention the ES was overextended from the uptrend supports.
The market psychology adds up. New traders were singing all-time high this morning. That market has a way to contradict the current sentiment.
With liquidity being this high, the VIX will only have 1-3 days of volatility before getting held back again. So, the downside on the ES is very limited unless all that available cash below suddenly disappears. Fat chance.
With liquidity being this high, I am not confident to long the VIX especially with a day job. The trend is still intact unless the ES can close below 3155 this week. Fat chance.
The easier trade is to wait for the pullback to end and long at major supports. The high liquidity will carry to you up. There are so many buy orders waiting below. Shorting the VIX is an easier trade too since the VIX naturally goes down anyways. If you didn't short the top of the VIX, oh well. Time would be on your side. I'll update that wedge resistance once I know where this spike ends.
Good discussion
I just checked ANFCI and it seems like the liquidity levels just about average. Not elevated
Chicago Fed Adjusted National Financial Conditions Index (ANFCI)
Itsallsotiresome
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@akatsiya, Yes. You're right. And it's rising fast. There is also corporate credit, treasury securities (Fed operations), and ES' price action that all indicate high liquidity. Unfortunately, the ANFCI is a very, very macro view of liquidity, so breaking down to individual sectors also help.
ProfitHarvest
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Sick call man, I aint touching volatility again without your confirm haha.
I think the Robinhood crowd could panic though about getting caught with their pants down in a recession (fat chance they're all gambling with money they can afford to lose!).
No amount of liquidity could stop a proper Retail panic but you'll probably walk that call over the line too when it's time.
Itsallsotiresome
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@ProfitHarvest, Liquidity does not determine direction. What it does is measures how strong medium-term and long-term supports are on the major indices. If liquidity is very high, panic gets countered by a lot of buy orders. Besides, fear tends to subside if people see a huge bounce that holds.
Liquidity is gonna have to dry up a lot to get above the red lines basically.
And big volatility spikes are more likely when liquidity is low.
And volatility spikes will have less power when liquidity is high.
Itsallsotiresome
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@ProfitHarvest, Basically, yes. If liquidity is low/weak, then the supports on the ES tend to be weak except for the key supports. There is a possibility that volatility can spike above the red lines. That's when institutions decide to do some heavy selling like they did in the NQ. That said, it takes weeks (possibly months) to reach weak liquidity levels. March 2020 took 3-4 months to get to that weak level... So that's why I'll just enjoy the ride by longing from support until then.
ProfitHarvest
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@Itsallsotiresome, For sure man, quite the money printing machine you've built here B).
I'm not actually in VIX but UVXY and FAZ, which are structured quite a bit differently but generally move in tandem with VIX.
You dabble in volatility outside VIX?
Itsallsotiresome
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@ProfitHarvest, TVIXF and UVXY. However, I short them mainly since liquidity is too high to risk a VIX long. I was trading the VIX since XIV was still alive. By the way, look up Dr. Stuart Barton. He's trying to revive TVIX and XIV. His proposed ETFs are pending approval by the SEC.
ProfitHarvest
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@Itsallsotiresome, Dude I analyzed TVIX every day for a month back in May when I started with this then Credit Suisse delisted it lol. Wish I knew then what I do now!
Yea talk about taking easy trades, shorting volatility during high liquidity periods seems like gold.
Itsallsotiresome
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@ProfitHarvest, Yup. It's still available as TVIXF on the OTC markets. But make sure you check the bid/ask prices and the spread first. You don't want to pay a big premium for no reason. You have to check trading volume everyday too. Shorting the VIX is generally the easier trade. Returns are slightly less, but the success rate is substantially higher. If you missed the top, then all you do is just wait for your returns.
I just checked ANFCI and it seems like the liquidity levels just about average. Not elevated
Chicago Fed Adjusted National Financial Conditions Index (ANFCI)