This article was originally published in The Option Strategist Newsletter Volume 9, No. 16 on August 24, 2000.
It is somewhat common knowledge amongst option traders that the CBOE’s Volatility Index ($VIX) can be used as a predictor of forthcoming market movements. In particular, when volatility is trending to extremely low levels – as it is doing now – it generally means that the market is about to explode. In this article, we’ll put some “hard numbers” to that theory and we’ll also look at alternate measures of volatility (QQQ and the $OEX stocks themselves) to see what they have to say.
The huge rally in stocks that began on October 4th, 2019, is in jeopardy. A couple of large down days have broken the steepness of the uptrend, but not the uptrend itself.
So, the $SPX chart is weakening, but hasn't completely capitulated to the bearish case yet. There is resistance at 3340 (the all-time highs) and there is support, as noted, at 3210. So if it continues to bounce around in that range, it would just be "re-generating," but a breakout in either direction should be significant.
$SPX has finally broken down somewhat and sell signals have arisen in many areas. This has been enough for us to declare our “core” position as bearish, but the bulls still have a chance to rescue things. To the media, the reason for the selling is mainly the coronavirus, or perhaps earnings, or maybe Boeing, but in reality the market was so overbought that any reason for selling was going to cause some decline.
This article was originally published in The Option Strategist Newsletter Volume 15, No. 2 on January 26, 20006.
The time is nigh for us to once again consider one of our most reliable seasonal trades – the January Seasonal. Simply stated, the system is this: buy “the market” at the close of trading at the close of the 18th trading day of January, and sell your position at the close five days later.
The bullish trend of $SPX remains intact. Having said that, the $SPX chart is extended (overbought), as are many other indicators. $SPX is nearly 60 points above its rising 20-day moving average. Hence a fairly sharp pullback of 60 or 70 points wouldn't change the trend, but it might be a bit shocking to the bulls.
February 2018 was a very nasty month for stocks. For some time, we have been mentioning the similarities between current action and that of late 2017 and early 2018: a long rally has taken place, accelerating in January; there have been multiple failed mBB sell signals; put-call ratios are extremely overbought; new highs have completely dominated new lows, etc. And others are watching this as well. In late January 2018, a number of sell signals occurred almost all at once: there was an mBB sell signal, breadth oscillator sell signals, equity-onlyput-call ratio sell signals, VIX began to rise, and new lows exceeded new highs. All of these occurred on or before February 1st, 2018. By February 2nd, the market was collapsing and by February 9th, 2018 – in a matter of just 5 trading days – the entire rally of over four months had been wiped out.
This article was originally published in The Option Strategist Newsletter Volume 16, No. 3 on February 16, 2007.
Last month, we saw the standard put-call ratio experience some very herky-jerky movements on its chart. As we pointed out at the time, those distortions were due to heavy dividend arbitrage in Altria (MO), JP Morgan (JPM), and AT&T (T). Since dividend arbitrage has become much more prevalent in recent quarters, we feel it’s time to examine this issue to see if there is something that needs to be done to “cleanse” the data of this extraneous, but extremely heavy, call option volume.