This year, there have been three occasions where seemingly stable, large-cap stocks suddenly saw their puts expand tremendously in terms of implied volatility. We took advantage of the first two – Kimberly-Clark (KMB) and Walgreen (WAG) – in The Option Strategist Newsletter and now another has arisen: Estee Lauder (EL).
The stock market continues to make new all-time highs for most of the major indices, including the Standard and Poors 500 Index ($SPX). The speed of the advance has accelerated in recent days, after minor resistance at $SPX 1600 was overcome.
1600 and 1550 are both strong support levels. There has been enough publicity about the 1600 support level that, if it were broken, some sharp accelerated selling would likely take place.
By Lawrence G. McMillan
Variance futures are attractive to institutions, but apparently for individuals: not so much. The CBOE Futures Exchange (CFE) delisted its variance futures contracts (on $SPX) a few months ago. They are supposedly working on a new contract in a somewhat different format.
Meanwhile, the CME has announced its intention to introduce variance futures on a wide array of 9 different futures markets. The following table summarizes these new listings:
Individual indicators are bullish in their own right, but price (i.e., the chart of $SPX), is without a doubt the number one factor for consideration. There is support in the 1575-1580 range -- generally in the area of the lows of the past couple of weeks.
Equity-only put-call ratios are both on buy signals.
A week ago, a correction was underway, but the bulls were having none of that, and $SPX support held in the 1540 area for the third time in the last two months. The correction measured about 60 $SPX points, which is small considering how much the index is up this year, but it had the effect of relieving overbought conditions and paving the way for new buy signals on some of the indicators.
This market is getting very interesting. It has been under pressure all week, and volatility has increased dramatically. In fact, most of the indicators have turned bearish -- except for the most important one: price. $SPX has held above the 1540 support level, and if this turns out to be a third successful bottom in that area, one would expect the market to challenge the recent highs.
Wednesday was an ugly day for the market, and it didn’t have the convenient excuses that Monday did. It was just plain old selling. There was a modest rally at the end of the day that lifted prices off of their worst levels. Overnight, S&P futures are little changed in Globex trading. $SPX continues to hold above the 1540 support level (Wednesday’s low was just below 1544). That is the only positive indicator for the bulls right now.
The broad stock market, as measured by the Standard and Poors 500 Index ($SPX) continues to make new highs almost every day. $SPX finally moved above its 2007 intraday highs, and so it (and the Dow $DJX) are trading at prices never seen before.
$SPX clearly established 1540 as a major support level, as it has rallied strongly and sharply off that level twice in the last month.
Equity-only put-call ratios continue to be heavily distorted by protective put buying.
The market continued its upward march from the lows of Friday morning, right after that negative unemployment report. New closing highs were made, and it looks like this morning will finally bring about a new intraday high on $SPX, which is the last “hurdle” left from the 2007 highs. S&P futures are up about 5 points in Globex trading, and so that implies $SPX itself would open somewhere near 1579, which would be a new intraday high.
