By Lawrence G. McMillan
In the last issue, we laid out a trading system for VXX and XIV, the most liquid short-term volatility ETN’s. VXX uses the two front-month $VIX futures contract to create an instrument that tracks near-term volatility directly, while XIV is the inverse of the same thing.
We had left a few questions open at the end of that previous article, and we aim to answer those in today’s issue. Moreover, some reader questions have been asked as well, and we will address those too, since they are important to the overall concept.
By Lawrence G. McMillan
In a brazen display of strength, the stock market — as measured by the Standard & Poor’s 500 Index — held up very well this week. Tuesday was perhaps the most crucial day in that a large number of traders had pre-announced that they would become sellers upon the news that either a) the Greek debit crisis had a definitive settlement plan, and/or b) the Dow Jones Industrial Average hit 13,000. Both of those things occurred on Tuesday morning, and yes the market did decline — at first.
By Lawrence G. McMillan
The market had all kinds of good news hurdles to overcome yesterday, and it did a pretty good job of it. The number of traders looking to sell when either a) the Greek agreement was reached, and/or b) the Dow hit 13,000. Both of those occurred yesterday morning, and the market did indeed fall back. But then it rallied later on, posting small gains for the day. To me, that was fairly bullish action. A microcosm of that action took place overnight as well, with the futures falling and then recovering.
By Lawrence G. McMillan
Was the two-day selloff on Tuesday and Wednesday of this week enough to refuel the bulls? It may have been.
$SPX closed at a new high for this post-October rally, although it has not yet exceeded the 2011 high at 1370. With today's rally there is clearly strong support at 1340. which is at 1290.
Equity-only put-call ratios are technically on buy signals. However, they edged higher over the last two days.
By Lawrence G. McMillan
The stock market has generally persisted in rising, albeit at a slower and slower pace, but it has taken on the appearance of a very tired entity. Therefore, we expect that the price correction of which we have been speaking for the last couple of weeks is at hand.
Perhaps it was precipitated by the parabolic move in Apple AAPL -0.94% that ran out of steam today, or perhaps it is once again worried about the Greek debit crisis. In my book, the former is more worrisome to the market than the latter.
By Lawrence G. McMillan
The stock market refuses to back off. This is making TV commentators gleeful, but experienced traders are finding such one-sided action to be a bit dangerous.
By Lawrence G. McMillan
The CBOE’s Futures Exchange introduced futures on the volatility index, $VIX, in 2004 and began trading options on $VIX in 2006. The Barclay’s Volatility ETN (VXX) has been around since January 31, 2009. VXX owns $VIX futures and rolls them in a manner consistent with the formula for creating $VIX. Hence the two – $VIX futures and VXX are directly related. We have recently conducted a study, investigating a trading system for VXX, based on the differential in the prices of the two front-month $VIX futures.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — As much as I like the intermediate-term picture, where nearly all of our indicators remain bullish, the overbought condition that has been created is reaching the stage where – if it’s not alleviated soon – it could result in a gut-wrenching drop that can wreak havoc on portfolios and, more importantly, on psyches.
By Lawrence G. McMillan
The market continues to repeat itself with great frequency these days. Once again, early selling was reversed, and now the market is trading near its highs for the days. Breadth is only slightly positive (due to the weak opening), but even so the breadth oscillators are in deeply overbought territory. $VIX rose initially, but is now down slightly on the day as well.
By Lawrence G. McMillan
The market continues to rise, mostly in a very slow-motion fashion. Meanwhile, overbought conditions are building. $SPX has bumped up against the 1330 level for three days in six, without being able to break through. I would not expect any correction to violate that bullish trend line, but if it should happen, it would be a major negative factor.
Equity-only put-call ratios remain split. The standard ratio remains on the sell signal that was generated last week. But the weighted ratio remains on a buy signal.
