The CBOE Futures Exchange (CFE) has launched a new volatility futures contract – this time on the Emerging Markets ETF (EEM). The volatility index (i.e., the EEM VIX) is calculated from EEM options and is listed under the symbol $VXEEM. The futures on that index trade with a base symbol of VXEM. Currently there are March, April and May futures trading. If you’ll recall, after the initial $VIX futures were listed on the CFE, the only other futures to be listed were those on the Gold ETF (GLD).
Each fall we recommend a spread: long Gasoline, short Heating Oil. This fall, the spread had its best year ever. The entry date, Friday November 18th, was perfectly timed, as that was the highest the spread traded (see chart, below). We entered at a price of 53, roughly. From there, the spread plunged (in our favor) until it reached 21 (at $840 per point). We lowered the stop to 28 after that, and were stopped out on January 4th.
The over-riding characteristic of this market since the first of the year is boredom. Daily ranges are tiny, and volatility is practically non- existent. This is ironic, of course, since at the end of last year, so many traders were certain that volatility would increase dramatically once the holidays were over.
The $SPX chart is in an intermediate-term uptrend. The dominant trend line is the rising one that connects the October and November bottoms.
This issue contains our annual analysis of the trades we’ve made in the past in The Option Strategist Newsletter. 2011 was a very good year for hedged positions, but a poor one for speculation. We’ll delve into the various strategies, attempting to analyze (if possible) why each one performed the way it did.
Monday was a very boring market day (again), which did nothing to chance the technical situation at all. Breadth was actually fairly positive, so the breadth oscillators remain on buy signals, and the oscillators are modestly overbought. The equity-only put-call ratios remain strongly on buy signals as well. $VIX did rise a little, but not enough to change the fact that it is still in a downtrend, and that – coupled with the fact that the $VIX futures term structure is still positively sloped – is bullish.
The stock market finally was able to take advantage of the favorable seasonal pattern and break out to the upside. It is now imperative that $SPX take out the October highs at 1293. It would be bearish if $SPX closes back below 1260.
Equity-only put-call ratios remain on buy signals.
Market breadth (advances minus declines) has been acceptable but not strong. This is a potential problem, and is one of the few negative divergences.
MORRISTOWN, N.J. (MarketWatch) — The Standard & Poor’s 500 Index is hovering near 1,260 once again. What makes this significant is that this is the area not only of the 200-day moving average of the Index, but it is also the point where the index meets the downtrend line connecting the recent market tops.