The Short Volatility Trade As It Stands Today (XIV SVXY VXX)

By Lawrence G. McMillan

As it stands today, the “Short Volatility Trade” has been watered down to a great extent.  Perhaps in an effort to get ahead of the regulators, most of the Exchange Traded Products (ETPs) that deal with “short volatility” have made adjustments so that their products are no longer as volatile as they had previously been.

Thursday-Friday Warnings Signs

By Lawrence G. McMillan

One of things I’ll always remember about the Crash of ‘87 (actually, I’ll always remember everything about the Crash of ‘87 – at least from my vantage point) was that the market was down on Wednesday, Thursday, and Friday of the week before, with Friday being the worst day.  That Friday, October 16th, saw the Dow drop 110 points – the largest point drop in history up to that time.  Of course, Monday was the Crash.  On that Monday, the futures opened down about 20 points (roughly equivalent to 120 points today, by my estimate).    So I learned to respect a market as being potentially extremely bearish if there is a big drop into a closing low on Friday.

Weekly Stock Market Commentary 4/27/18

By Lawrence G. McMillan

A week ago it seemed that $SPX had broken out of the "box" that had contained prices for nearly a month (red box in Figure 1) and was set to challenge some resistance levels. That came to an abrupt halt, and $SPX sold off more than 100 points in five trading days. But then, for the nth time, $SPX bounced off the 200-day moving average. A strong rally has ensued.

Even so, the downtrend line and the gap at 2750 represent significant obstacles to any intermediate-term rally. They must be overcome before one can upgrade the status of the $SPX chart.

Was the $VIX April Settlement Manipulated?

By Lawrence G. McMillan

Once again, there are questions surrounding the settlement of the CBOE volatility derivatives on this past Wednesday morning (April 18th).  There was what could be manipulative action on the $VIX settlement.  The day before, $VIX had closed at 15.25, and on Wednesday morning S&P futures were trading slightly higher, so logically $VIX would have been little changed or even lower.  However, on the “a.m.” settlement process for the April $VIX futures, the settlement was at 17.26, up over two points from the previous night’s close and more than two points above where $VIX itself was trading at the time!!  

Weekly Stock Market Commentary 4/20/18

By Lawrence G. McMillan

In some ways, the market has recently shown a good deal of strength. But in other ways, it has to do more to overcome the intermediate-term bearish trend that still exists.

This week, $SPX finally broke upward out of the "box" that had been containing prices since March 26th (marked in red in Figure 1). However, the real test will come at 2750. If the rally can't break out above there, the $SPX chart will still be in a bearish downtrend.

Both equity-only put-call ratios are now on confirmed buy signals this week. The weighted signal is coming from a very oversold condition, but the same thing happened in early March, and the market tanked anyway.

Weekly Stock Market Commentary 4/13/18

By Lawrence G. McMillan

It may not seem like it, but $SPX has been in a wild trading range between 2585 and 2660 since March 23rd. Moreover, the range is constrained between two moving averages: the rising 200-day MA from below, and the declining 20-day MA from above. Hence, a breakout from this range should produce a strong initial move. The range is noted by a red box in Figure 1.

Volatility Reaction In Past Bear Markets (Preview)

By Lawrence G. McMillan

Last week we published an article showing the different reactions of $VIX to the initial 6% drop in the stock market in early February, as compared to the 6% drop in the stock market in March.  In February, $VIX exploded from essentially 15 to 50.  In March, a similarly-sized move in the stock market only produced a rise in $VIX from about 15 to 25.  That’s a big difference.  For reference, those reactions are shown in Figures 5 and 6 – reprinted from the last issue.

Weekly Stock Market Commentary 4/6/2018

By Lawrence G. McMillan

From a simple point of view, this market has once again bounced off of the still-rising 200-day moving average several times. If it were to close below there,then that would be very bearish, for a new leg of the downtrend would be in place. Until then, though, there is the possibility that the support in the 2580 area will hold, and further progress can be made on the upside.

Even so, the chart of $SPX will remain negative until the gap at 2750 is filled. That is a long ways from here and that gap may not be filled for quite some time.

Weekly Stock Market Commentary 4/1/18

By Lawrence G. McMillan

As far as the $SPX chart goes, the 200-day moving average (MA) has proven to be the rock that is holding the market together. It stalled the first decline back in early February, and now $SPX bounced off it four times in the last week, refusing to fall below each time. This creates a support area in the 2585-2590 range. But if that is broken, things could get ugly quickly.

Weekly Stock Market Commentary 3/23/18

By Lawrence G. McMillan

$SPX has not only violated support, but it has broken its modest uptrend line (red lines on the chart in Figure 1). It also has negated its pattern of higher lows (the two lows that, when connected, made that red trend line on the chart). So the chart is bearish. There are potential support lelves at 2620, 2580 (where the 200-day moving average is), and 2530 (the Feb lows).

At 2530 there is the possibility that bear-killing "W" bottom could form. However, if the 2530 level doesn't hold, then you're look at closing the gap from last September at 2460, and you'll also be looking at a potentially intermediate- to long-term bear market.

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