Historic Volatility Term Structure (VIX Futures)

By Lawrence G. McMillan

We have been writing commentary for months now, detailing the steepness of the $VIX futures term structure.  But recently, it has risen to levels never seen before in the listed VIX futures markets (volatility derivatives began trading in 2004).   In this article, we’ll look at the current situation, compare it to past extremes, discuss appropriate strategies, and see if there is any predictive value to these extremes.

In focus: Bulls in paradise

By Lawrence G. McMillan

The bulls aren’t going to find a much better market than this one. Overbought conditions are worked off with minimal — almost “stealth” — corrections. Volatility remains low, while prices continue to rise. Support levels continue to build up along the way. And public opinion remains skeptical or even bearish in certain areas.

Levitation: Market tied longest streak of all time

By Lawrence G. McMillan

In our daily letters and in last week’s hotline, we have written extensively about the “levitating act” that the stock market was performing.  Essentially, it had gone from late December through this past Tuesday, while hovering above a number of standard indicators. 

Weekly Commentary 3/16/2012

By Lawrence G. McMillan

The stock market decisively broke out to the upside on Tuesday, thereby confirming (in my opinion) that the volatile move we have been talking about would take place on the upside.

The equity-only put-call ratios are wavering around at more or less constant levels and aren't giving any clear signal right now.      Market breadth hasn't been particularly great over the past three weeks, although it did revive enough this week to push the breadth indicators back onto buy signals.

This market is headed higher: Don’t fight the tape, but be careful

By Lawrence G. McMillan

(Marketwatch) - Just a week ago, the market had its worst day of the year. The Standard & Poor’s 500 Index finally touched and even closed below its 20-day moving average, for the first time in 52 trading days.

VIX Term Structure At Historic Levels ($VIX)

By Lawrence G. McMillan

The gaps between historical volatility and implied volatility have never been larger.  Furthermore, the gaps between $VIX and the intermediate-to-long-term futures have rarely been larger, as well.  Trading desks around the street are aware of these facts and those with “volatility desks” are writing about the situation or making recommendations because of it.  The one thing that no one seems to be addressing, though, is why the term structure of the futures is so steep and remains that way.

The “First Day of the Month” Trading System

By Lawrence G. McMillan

About this time last year, a popular study was released that showed the results of trading just the first trading day of the month.  That is, buy “the market” at the close of the last trading day of one month and sell out your position at the end of the next day – the first trading day of the new month.   In 2010, it was so successful that one could have captured 93% of the $SPX gain for the entire year by just being invested on 12 days – the first day of each month.

The Law Of Large Numbers: An Editorial

By Lawrence G. McMillan

It’s one thing when the media distorts facts, but it’s an entirely different matter when they try to change the definitions of mathematics.  Mathematician Jacob Bernoulli quantified the principle of the Law Of Large Numbers.  This “Law” basically means that a random distribution will converge to the mean if a large number of trials is observed.

Weekly Commentary 3/9/2012

By Lawrence G. McMillan

A small market correction finally occurred this week, but it seems like it was nothing more than an opportunity for the bulls to buy at lower prices. $SPX once again established the 1340 level as support; in fact, it was a virtual trampoline as the index spurted higher after touching it on Tuesday.

Equity-only put-call ratios turned negative this week and remain on sell signals.

Short Subjects - 1st day of the month, VXX, The Law of Large Numbers, Levitation, etc

By Lawrence G. McMillan

For a market that has been rather dull and steady, there certainly seems to be a large number of interesting items to talk and write about.  So, this week, we’re going to address a number of these because I think they could all be important at one point or another in the coming weeks and months, as this market tries to determine its major direction.

Trading or investing whether on margin or otherwise carries a high level of risk, and may not be suitable for all persons. Leverage can work against you as well as for you. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. The possibility exists that you could sustain a loss of some or all of your initial investment or even more than your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and investing, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results.
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