A week ago, we stated that the market was at a crucial juncture — that it had rallied to the 1,220-1,230 area on the Standard & Poor’s 500 Index and that it was either going to break out to the upside or retrace to the bottom of the trading range. What has happened is that the market has remained volatile around that area, but that so far there has not been a resolution of the bullish and bearish forces.
The October VIX Futures settled at 33.15 this morning, down 57 cents from last month's settlement. This is the third month in a row that the futures expired with a value above 30. This hasn't occured since the 2008 crash.
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Traders of volatility derivatives -- futures, options, or exchange-traded funds and notes -- often wonder why the VIX, or the Chicago Board Options Exchange Market Volatility Index, moves much more violently than do the derivative contracts that are based on it.
This market is now presenting a difficult choice. It has continued to gain ground almost every day, adding to its overbought condition (the "stocks only" oscillator is above +600, for example), and it is right at the top of the trading range. In addition, futures traded up 7 points or so overnight. In the past two months, these conditions would be screaming for a sell, and indeed the market is having its worst day in a while, by far, today. However, this seems to be a very delayed reaction.
The pace of the recent rally was such that the market is now short-term overbought. For all the movement, $SPX is still within the confines of a wide, volatile trading range -- which now extends from 1070 to 1230. A breakout above 1230 would be bullish, although there is more resistance at 1260.
Equity-only put-call ratios aren't as clear as they sometimes are. The weighted ratio has moved back to a buy signal, but the standard ratio really hasn't.
We have detailed many oversold conditions in the last two months, and in this article we’re going to look at a couple that haven’t been previously discussed. They are 1) the frequency of “90% days” and 2) Composite Implied Volatility (CIV) above 90%. Furthermore, we’ll review other general oversold conditions as well.
Sunday's overnight rally turned into a full-blown "melt up" by midday on Monday, as traders were literally in a panic to buy stocks. It was a "90% up day" nearly all day long. Very late in the day, the market started to decline, but then a whole new buying explosion occurred, driving prices to new highs for the day, and closing right on those highs. In the end it was a "90% up day" in terms of NYSE-based data and a "90% up volume day" in terms of "stocks only" data, just barely missing a full-blown 90% up day.
These oversold rallies are unbelievably strong – especially this one, which was preceded by three of four days in the “90% down day” category. Yesterday afternoon’s 45-point $SPX rally in 45 points was perhaps unprecedented, and now another 20 points have been tacked on today, as another afternoon rally is gathering strength. Makes one wonder who was selling previously, and where are they now?