VIX Lurching Higher Off Historical Support On Greece Worries (VIX)

Please refer to my article from last night if you would like background information on why we saw a VIX pop today.

Renewed uncertainty over the Greece bailout sent equities down and the Chicago Volatility Index (VIX) skyward. The VIX was up 5% in early morning trading, though has settled up around 3% as of 3:30 est.

Historically VIX support has been at the 16.62 level which has been tested four times the past few years. Each time the VIX reached the 16.62 it bounced fairly violently, followed by a slow decay. The downtrend has been in place Oct of 2008, each test of this downtrend failed resulting in further downward price action.

I am looking for further volatility decay after this much needed pullback settles out. With OPEX today and a new cycle starting Monday i expect much of the same volume and price action we have seen the past month.

52 week range: 16.17 - 47.63

I Say A Little Prayer For You....VIX Edition

@hamzeiAnalytics once told me, "Hoping and praying is for church."I compromised this afternoon by cueing up Aretha Franklin's - I say a little prayer for the VIX, to provide a bit of mood while i annotated the VIX chart on the left. I cued up John Denver's - The Spy's leaving on a jet plane when i moved onto Spy chart annotations.

As you can see from the chart, the VIX is on a death march, below the RED support it is anybodies guess as to where we land. My guess is 12 is not out of the question in the next few months, IF we continue our inflation/free money fueled rally, which could very well continue because nothing is giving you a better return than the stock market. Main street is catching wind, the party could be just getting started. OR on the flip side the vix could catch support and bounce widly...like it has 3 times prior.(green circles)

UPDATE: VIX closed up 2.2% today, up 5%+ in the morning session. Technical bounce compounded by Greece worries? Lets see how Monday goes.

The SPY chart on the left might give you some ideas as to what is driving the VIX down. We broke key resistance at 1150 fairly easily, the volume is light BUT the is volume green. If we continue this trend of "zombie up" on anemic volume we could see a systematic smash of the VIX clear to the 10 level by the end of the year, 12 in the meantime. Tomorrows numbers are going to be key in determining if we continue the march higher or retest the 1145-1150 level. IF all goes well and the number is spun successfully, more buying will come in. I believe this market is definitely due for a pullback so that the oscillators can unwind, if this happens we will probably snap right back up similar to the jan-feb "pullback".

The trading idea i mentioned last week, was to straddle the market at the 1150 using whatever option product you think best expresses your sentiment. I am still sticking by the idea even with the VIX crush, why? 1. selling intermediate term "low vol" can prove costly even when the VIX is historically "high", screw history 2. being long a spread and you are long vol, and or synthetically bearish on the market from a VIX standpoint.

Thus if you think the 16.62 level will hold in the VIX and the S&P's will pullback below 1150 you will capitalize on volatility(juice) once again getting injected back into premiums. If you are short and the VIX moves 10% at the open, your not going to be to happy with yourself. I believe future down moves in the VIX are going to be systematic and slower compared to it's violent up moves. Take a look at the above chart of the VIX which demonstrates this pattern, you have violent a spike up followed by a slow systematic decay. Profit from this.

Natural Gas Names Look A Bit Short Term Toppy (Consol Energy)

There has been recent speculation the Oil/Gas rally which began in med December 2009 is coming to an end . Reason being, CNX may have over paid for Dominions Marcellus shale assets at the top of a soft(demand) market. Current nat gas demand is still relatively weak considering the cold winter and snow storms, UNG is still falling through the floor breaking 52 week lows amost every week. The current race for acerage in the Marcellus shale formation is heating up, possibly a bit premature.


According to Citi Capital Market Research;

The 10% decline in CNX today partly reflects disappointment over
price vs the opportunity to fold-in CXG. Applying the same math that CNX
presented in their hand out, CXG ended 2009 with 1.9 Tcf of reserves and
valuating this at $2.25/Mcf yields $4.28 bln, greater than CXG's EV of $4.1 bln on
March 12th. In addition, this would assume no value for CXG's 250k Marcellus
acres. Another tough comparison is the fact that CXG added 0.5 Tcf of
reserves in 2009 with a drilling cost of only $0.39/Mcf.

Clearly investors did not view the announced transaction in the same light that
management did, sending CNX shares down 10% vs a 2-5% decline for its
peers. Most of the coal investors we spoke with expressed concern over the
potential earnings dilution, additional debt, and incremental earnings volatility
because of the added natural gas exposure (gas tends to be more spot oriented
than multi-year coal contracts). Of course the added gas leverage could turn
into a meaningful positive in a rising price environment.

The Report goes onto say;

In our opinion, most of the disappointment comes down to price relative to
expectations and the opportunity to fold-in the 17% minority interest
outstanding in CXG. Applying the same math that CNX presented in slide 4 of
their handout, CXG ended 2009 with 1.9 Tcf of reserves and valuating this at
$2.25/Mcf yields $4.28 bln, greater than CXG's EV of $4.1 bln on March 12th.
In addition, this would assume no value to CXG's 250k Marcellus acres.
Another tough comparison is the fact that investors were probably spoiled by
CXG's ability to add 0.5 Tcf of reserves in 2009 with a drilling cost of only
$0.39/Mcf.

My nutshell interpretation of the report findings is; the deal did have shareholders in mind, the deals real purpose is to add 41 Bcf of annual production to CNX's existing base of 100 Bcf at a "discounted" rate. Consol's price action monday coupled with topping /outbought marke condition in natural gas names (CHK, COP, D) suggests a pullback is not out of the question. The purchase of the Marcellus assets by Consol in my opinion acts as a contrarian indicator. I believe current Marcellus shale asset holders and the media have over hyped the short term potential of shale, potentially driving up marked asset values. A "hot" market always brings out the smart sellers and not so smart buyer.

Clorox Corporation Marches Higher On Takeover Speculation (CLX)

Clorox Corporation (NYSE: CLX) options are active today on chatter of a takeover. CLX shares have been subject to chatter for a few months with nothing materializing. Since the first of the year, Clorox share price has seen a steep rise off the 59 level.

Option traders are buying the March 65 calls. By 1pm est traders bought up around 6k March 65 calls vs an open interest of 1,200 contracts. The April 65 and 70 calls are very active as well, though this call spread was sold, which speculates the (NYSE: CLX) will stay below the 65-70 level.

I feel the play is not to bet on a takeover, but rather a fundamental play based on product demand and strong profits.

52wk Range: 49.32 - 64.90

Oil Continues The March Higher Despite Dollar Strength (USO)

Crude oil and commodities alike continue their march higher post fed decision. United States Oil (NYSE: USO) is up .27 today despite the dollar strength, currently up .05 (NYSE: UUP).

Options traders are buying out of the money calls in back months on the (USO)pricing in a move over 85$ in NYMEX futures.

As for what is driving commodities, Dennis Gartman of the Gartman Letter said today, "Commodities have gone 'mad' since the Fed's decision not to hike rates. Speculators are getting way to confident of a weak dollar and inflation."

52wk Range: 26.28 - 41.92