Economic and technical worries have seemed to keep VIX at generally high levels for the entire last month. VIX has generally remained above 30 since first breeching that level in early August 2011. Each time VIX has retreated to the 30-31 level, it has jumped even higher, as the S&P 500Index (SPX) declined.
The main feature of the current market is high volatility. Even though $SPX has been contained within essentially an 80- to 100-point trading range (bound by 1100-1120 on the downside to 1200-1220 on the upside) for weeks now, the speed with which it runs from one end of the range to the other has kept volatility measures high.
Equity-only put-call ratios are beginning to look more negative. The weighted equity-only has rolled over to a sell signal. The QQQ ratio has already rolled over to a sell signal, too.
One often feels that the current market conditions are more difficult than he’s seen before, even though they’re usually not. It’s just that the past travails have been pushed further into one’s subconscious, perhaps merely because they’ve been survived. It’s like Army veterans fondly recalling basic training, when – in reality – it was a real pain when it was taking place; but a few years later, it doesn’t seem so bad.
The stock market, as measured by the Standard & Poor’s 500 Index, remains volatile within a trading range. It reverses direction at will, and hasn’t been able to sustain moves for weeks now. Today’s trading is typical of that description. In fact, it’s been volatile in this manner all week.
...The two back-to-back “90% down days” of last week need to be worked off, and that seems to be happening at the current time. So far, over the last six weeks or so, severe oversold or overbought readings aren’t just “worked off” but rather are jumped on so hard that they completely reverse to the opposite condition. Coming into today, the breadth oscillators are modestly oversold, and $VIX was in the midst of forming a spike peak.
The market has quickly become extremely oversold again, and thus short-lived rallies are possible. In the bigger picture, bears see a break of the recent uptrend dating back to early August. Bulls see a successful retest of the lows. A move to new lows below 1100 will prove the bears right; otherwise, the bulls still have a chance to rescue the market.
The equity-only put-call ratios have been on buy signals for a few weeks but they are beginning to weaken now.
A week ago Monday, the stock market survived a bout of heavy selling with a late-day reversal that eventually carried the Standard & Poor’s 500 Index from an intraday low just below 1,140 to recent highs near 1220.
Those numbers roughly identify the trading range that has contained the S&P 500 SPX -2.56% since the early August lows. Volatility has remained high, so the index has been able to traverse the range swiftly and often. The large, swift moves tend to reflect the nervousness of both bullish and bearish traders.
MORRISTOWN, N.J. (MarketWatch) — The broad stock market, as measured by the Standard & Poor’s 500 Index is trading within a large, volatile range that should have significance when a breakout finally occurs. There is a generally bullish bias to the technical indicators right now, but that certainly doesn’t mean that a clear path has been laid out for a new bull market. We have not changed our outlook that another severe decline could easily loom on the horizon.
For now, $SPX is working its way higher -- towards resistance at the 1240-1260 level.
Equity-only put-call ratios generated buy signals recently, and have generally been declining (bullish) ever since.
Breadth indicators are on buy signals, too. They have reached modestly overbought levels now, after having been deeply oversold a week ago.
One of the reasons that we favor $VIX derivatives as a portfolio, hedge rather than $SPX (or SPY) puts, is that $VIX is much more volatile. Also, $VIX protection is more dynamic. However, there can be some problems with the timing of a market’s breakdown and the convergence of $VIX derivatives with $VIX. In this article, we’re going to look at the details behind these actions, so that those who buy $VIX derivatives for speculation or protection might better understand what the potential problems are.