Glitch in the Mix

Making sure that I have clean data from various sources is a pain in the butt. Especially when I’m on the road. Sitting in the HQ again this morning, I find that yesterday’s post overstated the VIX Mix by a full four points. What showed up on your screen as a 75% reading should have been 71%. Ugh!

Roll forward as equities had another weak showing and the Mix gave up another eight points to land at a neutral 63% at yesterday’s close. Bullish components dropped from 11 to 8 and the bearish count went from one to two.

Even with yesterday’s glitch, the Monday reading was the 8th in a row on the green end of the gauge. That streak has come to an end.

A couple of charts that have my full attention right now. First up is credit markets through the relationship between investment grade corporate bonds (LQD) and T-bonds of similar duration (IEF). Far right on the bottom two panes tell the story of a bearish ratio that the equity market has been ignoring. Maybe the bond guys have it wrong but I suggest paying attention here.

Second up is the CBOE’s measure of implied correlation for equity markets. This next chart uses COR3M (three-month implied correlation). Simply put, rising correlation has a history of coinciding with equity markets moving south. COR3M has been sneaking higher for about three weeks. Might be nothing, but combine this with the chart above and you’ve got me sitting up straight.

None of this appears to be an issue this morning as the Treasury Department has announced a plan to tame interest rates by doubling its program to buy longer-term debt. Hmmm. Will they be issuing short-term bills to fund the purchases? Near-term fix to a longer-term problem? I guess we’ll have to wait and see.

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