When a bullish market is too steady for too long, overbought conditions occur. These are normal and are usually worked off by a (perhaps) sharp, but short-lived correction. However, there are other kinds of extremes that arise that are not so easily worked off, nor so short-lived in their ramifications. Two of those are now building up, and they may signal a very volatile market in the near future. In fact, there is a third – the steepness of the $VIX futures term structure – but that’s something that we’ve discussed in detail before.
The two potential signals are based on these facts: 1) actual volatility has reached extremely low levels and 2) $SPX has not even touched its trailing 20-day moving average in over two months.
Read the full article and the rest of the newsletter (Volume 19, No. 21) by signing up for The Option Strategist Newsletter.
© 2023 The Option Strategist | McMillan Analysis Corporation