There are always critics sniping at $VIX, but they are usually fringe players – often with an axe to grind, such as promoting their own version of volatility calculation or something like that. But recently, the criticism has grown much larger and is coming from the center of the investment landscape.
What happened yesterday is relatively unimportant. It’s what’s happening tonight that is the big story. Yesterday, the market temporized while waiting for the FOMC minutes, and then it didn’t do much after the minutes were released, either. However, Bernanke spoke after the close, and the market is interpreting his comments as indicative of the fact that QE is just fine, and tapering won’t occur anytime soon.
We have two great educational webinars coming up next week -- one by McMillan Analysis Corp. founder and president Larry McMillan, and the other by Director of Corporate Services and head mentoring instructor Stan Freifeld.
On Monday, stocks rallied early, and held onto the gains throughout the remainder of the day. Overnight, S&P futures were up another 6 points in Globex trading. In other words, the upside momentum is strong and the bears seem to have disappeared. Support is at 1615.
Ever since the broad market bounced just over a week ago from the 1560 level, the bulls have been trying to gain complete control. So far, they have been stymied. $SPX has not broken out over resistance, nor has $VIX broken its uptrend. However, one other important indicator has turned bullish -- the put-call ratio.
$SPX has topped out in the 1620-1630 range for several days. A close above 1630 would be positive.
Today is a half-day, holiday-shortened session, and Friday will likely be a very low-volume affair. However, that doesn’t mean that prices can’t be volatile. In the bear market of 2002, the bulls engineered a 300-point Dow rally out of nowhere on July 5th, only to see the bears wipe it out completely in a few days after that. But if you have positions, these big moves can be meaningful.
With the market having broken down in the past two weeks, this issue has a lot to do with volatility. The feature article discusses bullish setups via volatility spike peak buy signals in four different markets. Recommendations are made in GLD, EEM, and AGN.
The speed with which $SPX fell -- 63 points in two days -- meant that it sliced right through support areas without stopping. There is support at 1560 -- this week's low on $SPX. Furthermore, there is important support below there, at 1540, from a series of lows back in March and April.
Equity-only put-call ratios have not given confirmed buy signals yet. They remain on sell signals.
With the stock market collapsing recently, option implied volatility spiked higher in a large number of markets. Of course, actual (historical) volatility has increased as well, but it is implied volatility that reflects more of the panic mood of the public, and thus is the one that can be used as a contrary indicator.
All futures contracts are limited in the amount by which their price can change in any one day. The exchange where the future is traded determines the size of that daily limit. The greatest fear that any futures trader has is that he will get caught on the wrong side of a prolonged limit move and therefore not be able to get out of his position. If this happens, huge losses could occur.
