In a move which some might call a “day late and a dollar short,” there are now going to be some products via which European volatility can be traded in the U.S. markets. There have long been volatility futures on the “European $VIX” – VSTOXX. VSTOXX measures the implied volatility of the European EURO STOXX 50 Index, using the same methodology that $VIX does.
As you certainly recall, after "Frexit," $SPX broke out strongly to the upside gapping up on two consecutive days (something that is quite unusual for a large-cap index). However, since then it has virtually gone nowhere. As $SPX has hunkered down in this tight band, some technical deterioration has appeared.
The stock market had a very favorable reaction to the French election. From a technical analysis standpoint, the move also brought in buyers, since $SPX broke upwards out of the pennant that had formed on its chart (red lines in Figure 1). But $SPX has not made new all-time highs, despite many of the small-cap indicies doing so. A cynic might say that $SPX is still in a trading range between 2322 and 2401 until proven otherwise.
Stocks (as measured by the $SPX Index) have had plenty of chances to collapse or to rally to new highs. Instead they have done neither, frustrating both bulls and bears.
In looking at the $SPX chart, two things stand out to me: 1) there is still a downtrend in place, from the all-time highs on March 1st, and 2) the support level at 2322 remains untested and thus is important.
Some deeply mixed signals have arisen in the last week. The basic chart of $SPX remains in its frustrating trading range, while breadth and put-call ratios generate mixed signals. However, $VIX has broken out to the upside, and that has generated some usually reliable sell signals.SPX continues to remain within the bounds of the March price range -- support at 2322 on the downside and ultimate resistance at 2400 (the all-time highs) on the upside.
Stocks (as measured by the $SPX Index) have had plenty of chances to collapse or to rally to new highs. Instead they have done neither, frustrating both bulls and bears.
This week, we had a customer question about the $VIX futures term structure, and I thought this might be a good time to review exactly what it is and what it means, while the market is still in a relatively calm environment.
Stocks (as measured by $SPX) made their highs on the first of March and have been struggling to regain that level ever since. Last week's breakdown beneath what appeared to be important support at 2350 generated enough selling that, this past Monday, $SPX opened down nearly 20 points and seemed primed to head lower. But buyers stepped in at 2322, and it's been nothing but up, up and away ever since. So that level represents important support now.
Larry McMillan's interview with talking Trading from back in October 2016 is now available on their website. In the interview, Larry discusses the Volatility Capture strategy, his best and worst trades and areas of potential growth in the markets.
Click here to visit the talking Trading site and listen to the interview.
