All Quiet on the Western Front

Today was the 5th anniversary of the collapse of Lehman Brothers and the markets were all quiet on the Western front.

Today's front page of Google Finance

A quick glance at Google Finance's front page showed lackadaisical sideways action in the US indexes interjected with headlines of Alibaba's IPO, which is apparently showing such "strong demand" that the offering has been raised even higher.

A glance at the high beta momentum ("mo-mo") stocks showed a different story today:

$TSLA -10%, $NFLX -4%, $FB -3.75%, $TWTR -5.25%

It's almost as if the big players suddenly became lucid of the risk that US markets face and wanted to quietly take profits without causing the public much alarm. A quick glance at the S&P500 shows that the 2000 mark failed to hold on this run-up:

Notice a cross-over on the moving averages and that all major supports for this rally, save for 1984-1982 have been breached. Let's take a look at the options skew for $SPY:

We usually see some optimism in $SPY skews which is represented by a parabolic risk curve (also known as a volatility "smile"). Today saw zero optimism as traders saw almost entirely downside risk. Puts in the index outsold calls 6:1. That's not to say the indexes can't go up this week, but I would certainly not put my own money (or anyone else's for that matter) on any sort of rally ahead of this week's FOMC meeting. This Wednesday's FOMC meeting presents major risk to US markets due to increased perceptions of hawkishness from Chairwoman Yellen.

The $VIX moved across its 200-day moving average today to close above 14 for the first time since middle August:

Volume bars indicate puts (red) and calls (green) sold (log scale)

The $VIX seems anxious to inch up but at the same time waiting for some events to occur before doing so. Perhaps it could be tomorrow's VIX September expiration, which also happens to be the day before the FOMC meets. Hedge accordingly.

As we head into the rest of the week, please be aware that many bulls are still stuck above levels in the $SPX as high as 2011 and that many bulls in momentum stock got burned today. Major geopolitical risk that the markets have largely ignored still looms: Scotland will soon vote for their independence, ISIS is still out and about causing trouble, the Fed will most likely continue to trim their balance sheets, and several tropical storms are building up in multiple regions of the world.

Good luck tomorrow.