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As subscribers know, the CBOE created the Short-Term Volatility Index ($VXST) earlier this year. It is a 9-day average volatility as opposed to a 30-day average volatility, which is what $VIX is. Moreover, $VXST futures started trading about two months ago, on February 13th.
The stock market abruptly ended its decline of a week ago and rallied all week. Wednesday's strongly higher opening turned into an overall bullish day, and as a result a number of indicators rolled over to buy signals or generated new buy signals as well.
We are back on a normal publishing schedule for the next two issues. However, due to travel commitments in May, there will only be one issue of The Option Strategist that month – to be published on May 22nd. There is some precedent for this in the past, and we will attempt to publish a “double issue” at that time. As always, the weekly Hotline updates will continue without interruption.
Recently, the difference between the two breadth oscillators that we follow moved to a rare, extreme differential. Buy signals were generated shortly after that. We have addressed this topic before (most thoroughly in Volume 21, No. 14). That issue was in July 2012. There weren’t any of these signals between that date and February, 2014. Now there have been two more signals.
The stock market has taken on a potentially bearish tone, although all the pieces are still not in place. But now that 1840 level has given way, the bears finally seem to have a chance to really take control of the market for the first time since the fall of 2012. We are not necessarily saying this is a full-fledged bear market, but the intermediate-term outlook is now turning bearish.
The upward market reversal that began on Tuesday when $SPX bottomed near the 1840 area, continued with passion on Wednesday. The rally was aided by the benign Fed minutes, and now $SPX is 25 points above Tuesday’s lows. The rally was accompanied by some very strong technicals as well. It was almost as if the buyers were waiting for the sellers (of Friday and Monday and early Tuesday) to finish before they stepped in with a vengeance.
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The broad stock market, as measured by the Standard & Poors 500 Index ($SPX) made new all-time intraday and closing highs on consecutive days this week. That, coupled with some new buy signals from breadth makes our intermediate-term outlook bullish.
Countering the bullish case is the fact that the equity-only put- call ratios have stubbornly remained on sell signals, but this might be protective hedging activity.
This issue was published one day early, on Wednesday, March 26th. This is because of the AAPTA Conference in Austin (see page 10), to which I will be traveling on Thursday, March 27th (the usual publishing day).