Morning Futures Roundup

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VIX Contango

   Fundamentals
VIX futures have been unable to capture any upward momentum north of the 20.00 level. The realized volatility for the S&P 500 has been 8.4% for the year, so even with the VIX at the lowest levels since last summer, the index may be overpriced. The current market conditions suggest that stock indicies are in for a slow grind.

Bond futures did not sell-off forcefully after the Fed suggested that QE3 may not be needed and then backtracked on the comments, citing the possible need for "sterilized" easing. Ultimately, the Fed will have to implement some sort of Bond buying program to avoid a sharp upswing in yields, as some traders do not want treasuries at their current levels. Some traders have been using and will likely continue to use higher dividend paying stocks as surrogate bonds because of the low yields offered by treasuries and higher quality corporate bonds.

In addition to the Fed likely being forced into some form of easing, central banks in Europe and China are expected to continue using expansionary tactics. In light of economic data being less than stellar, stocks will likely move higher at a snail's pace, which is negative for the VIX. It is interesting to note the fairly sharp contango in the first several months in the VIX futures contract. Typically, we see these contango conditions exist in bear or flat markets (e.g., Crude Oil in 2009).

   Technical Notes
Turning to the chart, we see the March VIX futures contract closing below the early February low close of 17.95. The weak close suggests prices may come down to test support near the 16.00 level. Failure to hold 16.00 could bring about a test of early 2007 lows. The oversold condition of the RSI indicator suggests prices may find some support in the near-term.

  
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