In this video recorded at the TradersExpo Las Vegas, Lawrence McMillan, founder of McMillan Analysis, explains why VIX derivatives are the superior form of portfolio protection.
Click here to visit MoneyShow.com and watch the video
Released: 11/29/2011
Focus: Portolio Protection
By Lawrence G. McMillan
Rather heavy selling over the past six days (with the exception of last Friday) has resulted in a deeply oversold condition. That should produce a short-term rally, but after that the picture is far less rosy.
The bigger picture in $SPX shows two converging trendlines: a rising trendline connecting the October and November lows, and the declining trendline connecting several tops since July (which is near the 200-day moving average a major provider or resistance to date). Both are significant.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — Despite plenty of volatility, the stock market – as measured by the Standard & Poors 500 Index — has been unable to break out of its rather wide trading range. That might remain the case for the remainder of this year, but it is likely that early 2012 will see a significant move.
By Lawrence G. McMillan
The broad stock market -- as defined by $SPX -- had a major failure today in that it could not break through the upside resistance at 1265 (the approximate location of the 200-day moving average).
Equity-only put-call ratios are now struggling to remain on buy signals.
Market breadth has continued to be a fairly accurate short-term indicator, and the breadth indicators are technically on buy signals even after very negative breadth today.
$VIX has become rather docile, and seems to be calling for more of a trading range environment.
By Lawrence G. McMillan
The CBOE Volatility Index (VIX) is sometimes referred to as an indicator which measures the cost of protection. To understand the thinking behind this definition, consider that most portfolio managers using listed options to protect their portfolio either buy S&P 500 Index (SPX) puts or VIX calls. SPX put purchasing is still the more common method. When demand is high for SPX puts, the price of those puts is typically forced higher, increasing their implied volatility and thus usually increasing the price of VIX.
By Lawrence G. McMillan
This week's rally has improved the status of many of the indicators, but not necessarily the chart of $SPX itself. A breakout above resistance and the 200-day moving average at 1265 would be required in order to turn this chart positive.
Equity-only put-call ratios have turned bullish. Market breadth swings the most wildly as these volatile moves occur. Currently, breadth indicators are on buy signals and are not yet overbought.
By Lawrence G. McMillan
Just over a week ago, $SPX was probing the upper end of the trading range, a few days after a strong rally on Veteran's Day. But upside momentun slowed, and selling set in. Since then, the selling has fed on itself with ample aid from a series of unsettling news:
1) the continuing European debt crisis
2) the lack of results by the Super Committee
and 3) the MF Global bankruptcy.
By Lawrence G. McMillan
It just doesn’t seem that this market can put a rally together. There were two attempts to do so this morning, and both failed. Yet, when $SPX probed below 1180, a strong buy program arose. So there are buyers around, but the aren’t likely taking positions to hold, merely to trade.
By Lawrence G. McMillan
The bears seized control with heavy selling over the past two days. However, all is not lost, but the bulls certainly squandered what could have been a good opportunity. The $SPX lows today were 1209, with a close at 1216. This is just barely clinging onto the old support range (1215-1230). A rally from this level would be viewed as just another probe to the lower end of the wider trading range.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — When the stock market, as measured by the Standard & Poor’s 500 Index, broke out over 1,220 about a month ago, it was a strong bullish signal. Most of the technical indicators agreed by registering intermediate-term buy signals as well.
