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Extreme Market Shocks From A Low Volatility Environment (Preview)

By Lawrence G. McMillan

Market shocks can come in a variety of forms. Sometimes the market is wary that a correction might occur. Sometimes it is blissfully unaware of the dangers that lie ahead.

Another Historic Double Top: 2007 (Preview)

By Lawrence G. McMillan

Last week, we wrote extensively about the similarities between the current market and the market of the summer of 2000.  In 2000, $SPX rallied back to its old highs, forming a double top right around Labor Day.  From there, the market declined 50% into the summer of 2002.  

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.

What Just Happened In The Volatility ETPs? (Preview) XIV VXX

By Lawrence G. McMillan

XIV: The Scapegoat of The Market’s Decline

As trading opened on Monday, February 5th, 2018, stocks had already been falling for a few days.  Then on that day there was a major decline – the largest drop in point terms in history.  The Dow was down 1,175 points. The S&P 500 Index ($SPX) was down 113 points.  All other major stock indices suffered similar fates.  Those net changes were effective as of the 4 p.m. (Eastern time) close of the NYSE.  

Long-term Put-Call Ratio Charts (Preview)

By Lawrence G. McMillan

We have been repeatedly noting that the equity-only put-call ratio charts are at multi-year lows.  The charts on the right show visual evidence of this.  

These are very long-term put-call ratio charts, extending back 25 years in the case of the standard ratio (upper chart) and 20 years in the case of the weighted ratio (lower chart).  

Seasonal Patterns Around Thanksgiving (Preview)

By Lawrence G. McMillan

The Thanksgiving holiday in the U.S. brings about several positive seasonal patterns that are generally worth playing.  A number of years ago, we used to trade these separately, but then it became apparent that one generally “morphs” into the other, and so in today’s world, these three systems are really blended into one.  The three systems, in their original format, were:

Heating Oil – Gasoline Spread 2017 - 2018 (Preview)

By Lawrence G. McMillan

This has been a successful seasonal trade in many years, and the last two years were the second and third best years in our history.  We have used this in 23 of the past 24 years – skipping only 1995, for reasons which I no longer recall.

In this trade, we buy RBOB Gasoline futures and sell Heating Oil futures.  This is the simplest way to establish the spread, eschewing futures options and ETF options – the options are just too illiquid in the February contracts, which is what we use for this spread.

Another Series of $VXO/$VIXMO Sell Signals (Preview)

By Lawrence G. McMillan

For a long time, from 2006 to 2017 (with the exception of a lone sell signal in 2014), this system didn’t generate any signals as $VIX traded at normal levels of 15 and above.  But when $VIX dropped to extremely low levels this year, these sell signals began to appear again.  We had previously written about this system in issues dated Jan 27th and July 16th.  Simply stated, the system is this:

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