Well, as events unfold over in the Middle East, with some sparks of public unrest and potential regime change political risk getting priced in, there’s been a bit of a flurry of activity over in the US. Here are a few technicals to keep you abreast.

The Techs

The S&P500 started to pull lower against its rising trend, breaching the MA20 which was propping it since mid last year. Also, of more interest to me, the VIX index, occasionally called the fear gauge has picked up some heat as well last Friday with a cool 24.09% uptick. This kind of move isn’t all too unusual for the VIX as it usually takes on sudden moves. Still this has breached the upper Bollinger band, that is two standard deviations above the running 20 period moving average, which might indicate some upwards push over the next few days.

Contango With Me

I had mentioned in previous posts that a steep contango (far futures being more steeply priced than the near-term) had built up over the VIX curve through-out the last half of 2010 and first few weeks of this year. We are now seeing some repricing of this back towards the present. Congratulations to those who may have read the convergence trade in between the lines: short on far future upper contango and long on near term futures. Some volatility rent might be coming back on the books for those traders now.

Overall, these kind of moves on the VIX tend to indicate a healthy re-appraisal of current positions. We are not yet really in the fear zone just yet. Other effects tend to flow through on the FX front too with the USD usually taking on a bit more strength due to capital markets risk-aversion. Treasuries tend to gain in price as well and last Friday’s 30yrs trades, with a slight pullback over recent yield-gains, seems to support this.

VIX Future Breaching the Upper Bollinger

VIX Breakout over the Upper Bollinger

Bollinger Bands are a running stochastic measure useful in describing unusual price moves.

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