Looking at the model compared to the S&P 500 (SPY) there were two arbitrage opportunities during the day and another rapid convergence of the two into the close.
Taking a look at the components level you can see the Treasury bond component (TBF) dive after strong demand for the 1:00pm 10-year auction drove up prices. As a result the model became deeply discounted relative to the SPY for most of the afternoon until a last minute rally in high yield corporate bonds (HYG) to very neatly close the gap between the S&P 500 and the model.
While the volatility component (XIV) closely tracked the S&P 500 all day, yesterday was a different story as it dragged heavily.
All in all this seems to represents some tension in the market as investors start to take increased caution and diversify a bit after what has essentially been 9 weeks of going nowhere but up for stocks.
I'd also like to point out the movement over the past 6 weeks of stocks vs the dollar index (UUP), which typically move inversely to each other. Another reason for caution in my opinion.
While the volatility component (XIV) closely tracked the S&P 500 all day, yesterday was a different story as it dragged heavily.
All in all this seems to represents some tension in the market as investors start to take increased caution and diversify a bit after what has essentially been 9 weeks of going nowhere but up for stocks.
I'd also like to point out the movement over the past 6 weeks of stocks vs the dollar index (UUP), which typically move inversely to each other. Another reason for caution in my opinion.
