NASDAQ 100 VOLATILITY, LARGEST PREMIUM OVER THE VIX SINCE 2004

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Nasdaq Volatility – Highest Since November, a Spectacular Divergence found in NDX vs S&P Realized Volatility

CBOE NDX Volatility Index vs VIX

This week, we’ve witnessed a strong correlation between Nasdaq and Rates (Treasuries). Keep in mind, this year the Nasdaq went up with U.S. government bonds as investors rotated from Trump trades into large capitalization growth stocks.  This Spring – as DC gridlock took hold – investors rushed into bonds and the Nasdaq 100.  Today, this rotation is now in full reverse mode.  See our The Bear Traps Report with Larry McDonald; Reflation Revival, Part I – June 21, 2017.  U.S. GDP and ISM data has come in above expectations.  At the same time, there is far more momentum in Washington than there was during the Comey (former FBI Director fired by President Trump) drama days of early May.  Over the last few weeks, the sell off in U.S. Treasuries and FAANG (Facebook, Apple, Amazon, Netflix, Google) equities has been spectacular.   Investors are rushing back into value stocks with energy names (XLE, XOP) up 7-9% from their recent lows.  Which begs the question, if oil (WTI) can make a move back up above $49 – where will Facebook FB trade?  $135?

In our view, the 2017 bond market rally – which saw yields plunge from 2.62% in December to 2.12% on June 26th – supported the equity market surge, especially in the Nasdaq NDX.   Going on the 9th year of the equity bull market, it’s clear to us the 2017 explosion higher in the Nasdaq 100 NDX had a lot to do with the plunge in long duration bond yields.  The recent reversal in this trend has been profound.

Volatility Suppression

We must remember, global equities are off to their best start since 1998  – calm waters are sucking a lot of people in to complacency.  Too many players are in the same trade selling volatility, they’re … <read more here>