Now that January is past, most of the seasonal trades are over for this cycle. It was an interesting and somewhat profitable seasonal trading season, but it always behooves a trader or analyst to go over the results of a system while the data is still fresh. This can lead to adjustments – hopefully profitable ones – when the seasonal system rolls around the next time. Furthermore, if no adjustments are needed, it confirms that the system is continuing to work well.
Last October, the CBOE changed the way it calculated $VIX – or, as the CBOE put it, the methodology was “enhanced.” The change was a logical and necessary one, in that weekly options were used in the calculation, where applicable. $VIX is a 30-day volatility estimate, and it had always used the two nearest series of $SPX monthly options. They were then weighted to produce a 30-day volatility measure.
The stock market has had a strong week. Even so, $SPX remains within the general confines of the 1990-2065 trading range, on a closing basis. We still await a breakout from that range in order to establish an intermediate-term trend.
In something of a surprise, both equity-only put-call ratios rolled over to buy signals after Tuesday's trading this week. The computer programs that we use to monitor these charts were right on top of this new signal.
Market volatility has remained high, and we can expect these high levels of volatility to persist.
Even with this volatility, the chart of $SPX is still in a trading range. Once again -- for the fifth time this month -- 1990 has proven to be support. To say that 1990 is an important level would be an understatement. If it gives way, a much more bearish situation would develop. On the upside, there is resistance at 2065.
...An astute subscribers noticed that, last week, another $VIX “spike peak” buy signal was setting up. $VIX had risen more than 3.00 points, measured with closing prices, from Jan 9th to Jan 13th (two trading days later). Moreover, $VIX then dropped sharply this past Monday, January 20th, triggering a second signal while the first one was still “open.”
The feature article is a relatively short one, discussing the various January seasonal patterns that exist. Most of the article deals with the end-of-the-month “January Seasonal Buy” that we have used in our recommendations for a number of years. There is a specific recommendation for this system on page 2.
The market continues to be volatile, with $SPX bounding from support at 1990 to resistance at 2065 swiftly in the past four days. Outside of that range, there is further support at 1975 (the October lows) and resistance at 2090 (the all-time highs). As a result, the $SPX chart remains neutral at this time.
Tuesdays after three-day weekends often produce wide swings. Yesterday was no exception. A higher opening was almost immediately followed by severe selling – knocking $SPX down almost 25 points. But then the bulls found their buy buttons, and the market rallied back to finish slightly on the upside. The support at 1990 remains intact, and it is an important level. Resistance is at 2030 and 2065, the latter being the more important one.
The stock market has experienced huge moves so far this year far greater than have been seen since the fall of 2011. There has been a lot of back forth action, but the bears seem to be gradually getting the upper hand. Yet, the indicators are mixed and it could be that the Standard & Poors 500 Index ($SPX) is just in a wide and volatile trading range.
The feature article is our annual assessment of last year’s recommendations. Not only are the results broken down in a great deal of detail, but there is some commentary on what might be changed in order to improve results and avoid past mistakes.
Our market comment is on page 7. The extreme volatility in the broad market has resulted in a number of technical signals being issued this week. As a result, we are going to recommend a trade in SPY (page 9).
There is naked put write recommendation in Gamestop (GME) on page 8.
