For the first time in a while, some sell signals are beginning to creep into our indicators, and the broad stock market is selling off. So far, the damage has been controlled, but Thursday's sharply down opening shows that there is the potential for some heavy selling if there is perceived danger. $SPX has support at 1950 and 1925, and even at 1900 below that.
Equity-only put-call ratios are in agreement, and they are both on sell signals.
We have written many articles in the past about how to hedge a portfolio with $VIX options, but in this article we are going to expand the discussion somewhat. Not only are there more products than mere $VIX options, but the concepts of hedging with volatility options extends beyond mere portfolio protection into quasi-arbitrage strategies and then into more creative speculative (but still hedged) strategies.
The market finally suffered some selling yesterday. This didn’t cause any more of our indicators to turn negative, but breadth indicators are getting close. Even so, we have enough sell signals in place to call for at least a short-term correction. One of the more bullish things, though, is that the parade of “analysts” on CNBC is uniformly bearish. This includes a number who are perma-bulls for the most part; but now they are calling for a correction.
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$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.
The feature article details a shortterm seasonal systems that lasts for just one week. It actually pertains to the week that is just ending, and we outlined the system in last week’s Hotline, using it to hold onto SPY puts. The full explanation of the system is in this issue, and we will employ this system again in the future.
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There is support for $SPX at or just below 1950. In addition, there is support at 1925 (the lows from a couple of weeks ago), and then there is major support at 1900.
The one deteriorating area among our main indicators is the equity-only put-call ratios. Both have started to rise over the past three days, and the weighted ratio is now officially on a sell signal.
This seasonal trade first came to my attention last year, but when I heard about it, the system had already been entered. So, I wrote it on my calendar for this year, and the time has arrived. As it turns out, it is one of the few confirmed bearish signals out there right now (no, I don’t count the myriad of overbought conditions as “confirmed bearish signals;” they would have to generate actual sell signals to be confirmed).
Larry McMillan was recently interviewed on the Benzinga PreMarket Prep show where he discussed common option trading pitfalls, the benefits of option writing, the trend of $VIX, dynamic hedging, weekly options and much more. Watch the interview below.