The recording for Larry McMillan's recent "The Current State of The Market-Predicting Option Indicators" webinar with Cyber Trading University is now available. In the video, Mr. McMillan discusses the chart of the S&P 500, the equity only put-call ratios, market breadth and the volatility indices and what they are saying about the stock market. Watch the video below.
The Standard & Poors 500 Index ($SPX) is nearing its all-time highs. But the progress has been rather slow, especially in light of the fact that all of our other indicators are on buy signals. As you can tell from Figure 1, there is heavy resistance all the way up to the all-time highs at 2135 (upper thick red line). The first support level is 2090, and then 2040 below that.
Stock prices maintained a positive stance throughout yesterday’s session, once again producing new closing and intraday highs for this move. Moreover, these are the highest prices since last July 2015. Still, one has the feeling that the rally should be stronger, instead of essentially inching higher day by day. Overnight, S&P futures are down 8 points, so today might be a down day. There is support at 2090 and then 2040 below that.
After a strong upside breakout last week from the triangle formation (blue lines in Figure 1), the market has spent this week in a tight range. There has been an improvement in the indicators in general, but the most important indicator -- the price chart of $SPX -- has not really responded.
A clear breakdown and close below 2090 would be a short- term negative, likely calling for a retest of support at 2060. A breakout over 2115 and then 2135 would be very bullish.
This article was originally featured in the 5/27/16 edition of The Option Strategist Newsletter.
As you can see from the right, $VXST (the CBOE’s short-term volatility index) is approaching 10. That seems incredibly low, and one would naturally think that it is a warning sign. But the $VXST chart of past two years (below) shows that it’s been at this level a lot – just not since August of 2015.
This article was originally published in The Option Strategist Newsletter Volume 2, No. 24 on December 22, 1993.
We have often stated that one can reduce the risk of stock ownership by buying call options instead. This, of course, is contrary to what many consider to be "conventional wisdom", in which option purchases are viewed as extremely risky things. As with most investments — and a lot of other things in life — it's a matter of application; every strategy can't be painted with a broad brush. We'll go over the way to make call option buying a lower-risk alternative to buying common stock, and then we'll apply it to a currently popular strategy involving the purchase of the highest-yielding Dow-Jones stocks at year-end.
We have often made note of times when a particular market is so strong that it closes above or below its 20-day moving average for long periods of time. These are rather rare situations. While they are occurring, it seems that the market is going to keep going in that same direction forever. A few bullish cases have lasted so long that it seems that the market is “levitating” above its moving average. The last time this occurred was February-April of this year (Figure 1, yellow area).
The Standard & Poors Index ($SPX) broke out of the triangle that had formed on its chart (see Figure1), and that breakout was strongly on the upside. The bears had plenty of chances to violate the support at 2040 on a closing basis, but were unable to do so. So now we'll see if the bulls can do better with their chance.
The bears are now paying for their failure to seize control last week. Yesterday’s rally was strong and was assuredly due to a number of bears “throwing in the towel.” Yes, I know there was a favorable housing report, but that certainly wasn’t enough to justify a rally of that magnitude. So, can the bulls seize control? They have not been able to engineer a follow-through to strong up days, either. Today is their chance. S&P futures are up 6 points in overnight trading.
This article was originally published in The Option Strategist Newsletter Volume 24, No. 8 on April, 23 2015.
One of the most successful investment strategies practiced by hedge funds (and other sophisticated investors) in the last ten years has been the “volatility short” trade. It is rarely mentioned on TV or in the media, but that is not too surprising. They would rather promote things such as the “Japan carry trade,” which wasn’t necessarily a profitable strategy at all unless a great deal of risk was taken. Not to say that the “volatility short” didn’t have its own share of risk, but it’s a lot more certain to profit if a certain status quo is maintained.
In this article, we’ll look at the history of the “volatility short” trade and see where it stands today. The long-term perspective on this trade may be a bit surprising, for it shows the tremendous toll that the $VIX futures premium takes on a long volatility position.
