In the left graph we can see the monthly trajectory of the RUT. In the right chart we can see the daily price action within the same channel. Today, a powerful move to the 20 day moving average is very impressive but not unexpected entirely. The VIX telegraphed the move insofar as high relative volatility readings portend market upside, sooner rather than later. Nonetheless, for the bulls to really establish their dominance and push the daily trend to the top of the range will require at least one more day of similar action. This has happened twice in this particular up move since 11/16/2012.
1. I bet that the market will not be so vigorous this time by staking out a couple of time spreads at the 900 and 920 strikes. Should a sudden pop in volatility strike the market, these will profit.
2. Adding to the VXX trade faithfully and daily according to my tests, I’ve been able to clear some inventory today. Nonetheless, the earliest puts I bought have yet to return to the highs they reached on Monday morning when I neglected to nab the profit. I’ve reduced some exposure in this original position, but I still need a net loss in the VIX cash market over the next three weeks to realize the full profit.
The money flow has been positive today, but the day trading trend junkies will jump off here at the close to bring the price on the day in a bit. Reversion to the mean traders are staking their short positions as I type. Classic chop or a continued up, up, and away? Tomorrow will know.
Stay close to the market always.