News of negative interest rates in Japan has launched the futures on the major indexes higher. However, US GDP data is due tomorrow which could put a damper on the move after the open.
Volatility indexes and Put/Call ratios still are problematic and the SKEW remains high. We wait for confirmation before getting more bullish. Today's TRIN closed at 1.78 which is quite high considering we had a decent move up on the day. This bodes well for bullishness tomorrow.
The 1815/1805 put spread is worth about 5 cents now, so it should close out tomorrow at max gain. I will look to open another short put spread for next week on intraday weakness tomorrow.
Thursday, January 28, 2016
Wednesday, January 27, 2016
No upside!
The Fed was not supportive enough to rally stocks today, even though oil prices rose. All major indexes are still (barely) holding their Friday opening levels, making the gains since then negligible.
Oil seems to have decoupled a bit from the SPX index. Now, the focus seems to be more on US domestic data and earnings. Facebook posted results that beat market expectations and the shares are up strongly after hours. This may provide some upside potential for the market tomorrow.
The VXST is still above the VIX and the SKEW remains high - albeit below 130 for yesterday and today. Until volatility moves lower, significant pullbacks can be expected.
Our put spreads at 1815/1805 look relatively safe being 3% OTM currently, but any sharp down swings could put them in jeopardy by Friday evening. I will look to roll them or close them if they come under pressure.
Oil seems to have decoupled a bit from the SPX index. Now, the focus seems to be more on US domestic data and earnings. Facebook posted results that beat market expectations and the shares are up strongly after hours. This may provide some upside potential for the market tomorrow.
The VXST is still above the VIX and the SKEW remains high - albeit below 130 for yesterday and today. Until volatility moves lower, significant pullbacks can be expected.
Our put spreads at 1815/1805 look relatively safe being 3% OTM currently, but any sharp down swings could put them in jeopardy by Friday evening. I will look to roll them or close them if they come under pressure.
Monday, January 25, 2016
Oil is killing the rally!
With the price of oil falling more than 6% today, the mid-day rally on the SPX turned into a real rout by day's end.
When the SPX was trading around 1894, before the major collapse I sold the Jan29 1815/1805 put spread for 65 cents, but by day's end it was trading at 1.20. I will need to roll this trade, and sell some calls, if we start to see a big down day developing tomorrow.
I also priced some SPX put spreads for the February expiration, as the extent of this downfall really cannot continue to be so oversold to last another 3 weeks without a bounce. I see opportunities in the high 1600s for selling put spreads.
When the SPX was trading around 1894, before the major collapse I sold the Jan29 1815/1805 put spread for 65 cents, but by day's end it was trading at 1.20. I will need to roll this trade, and sell some calls, if we start to see a big down day developing tomorrow.
I also priced some SPX put spreads for the February expiration, as the extent of this downfall really cannot continue to be so oversold to last another 3 weeks without a bounce. I see opportunities in the high 1600s for selling put spreads.
Wednesday, January 20, 2016
The start of an upside run?
Finally, a huge overnight down move and follow through selling put the SPX with a loss of over 3% from yesterday's close at one point today. This felt like a bit of capitulation. The VIX went as high as 32, but closed around 27.5 giving another VIX spike buy signal. Today's candlestick as a classic hammer can offer a short-term bottom for the market, also.
Oversold conditions reached extreme levels lately. One of the rarest signs came from market breadth as discussed in a note from Larry McMillan. "Market breadth was poor [yesterday], and ... remain on sell signals, deeply into oversold territory. With the “stocks only” oscillator below –1,000, it’s in an area that is quite rare. There have only been 17 days of readings below –1,000 since we have been keeping this indicator (since 1994). Three of them have come this year, two were in August 2011, two were last August, nine were in 2008, and there was one in May 2012. All of those were major bottoms in the stock market, at least for a strong rally." Some other oversold conditions are outlined in Urban Camel's blog last week.
With short term measures of volatility still elevated compared to longer-term measures, the market is still not ready to rally. SKEW came in elevated again today at 134. We need these to mark significantly lower to fuel a longer term rally.
With VIX high and big down days like today, very short term trades are possible for easy profits. The 1760/1750 SPX put spread with two days until expiration sold at $1.40 for a good hour today. With the market rally, it was back down to 80 cents by the close. These low risk trades seem viable to pick up some cash by month end.
Oversold conditions reached extreme levels lately. One of the rarest signs came from market breadth as discussed in a note from Larry McMillan. "Market breadth was poor [yesterday], and ... remain on sell signals, deeply into oversold territory. With the “stocks only” oscillator below –1,000, it’s in an area that is quite rare. There have only been 17 days of readings below –1,000 since we have been keeping this indicator (since 1994). Three of them have come this year, two were in August 2011, two were last August, nine were in 2008, and there was one in May 2012. All of those were major bottoms in the stock market, at least for a strong rally." Some other oversold conditions are outlined in Urban Camel's blog last week.
With short term measures of volatility still elevated compared to longer-term measures, the market is still not ready to rally. SKEW came in elevated again today at 134. We need these to mark significantly lower to fuel a longer term rally.
With VIX high and big down days like today, very short term trades are possible for easy profits. The 1760/1750 SPX put spread with two days until expiration sold at $1.40 for a good hour today. With the market rally, it was back down to 80 cents by the close. These low risk trades seem viable to pick up some cash by month end.
Monday, January 18, 2016
Volatility still rising
Market Volatility continues to rise. VXST rides above all other volatility measures. Last week it broke briefly below the other measures and spurred a one day jump in the SPX (lower graph), but broke down below again and now trades at a huge premium to VIX.
The number of stocks above their 20-day moving average continues to retreat and is at extremely low levels last seen in late August of 2015.
The oversold signals are quite strong now and a short lived rally can happen any time.
Tuesday, January 12, 2016
Extremely oversold conditions, VIX spike buy signal
With so many oversold conditions in the market arising since 2016 started, I wait for signals to show that the market might turn bullish. So far, most signals have not materialized, but the fruit is ripening.
The VIX has closed more than 3 points of its intraday high of Friday, so I entered a very bullish trade with defined risk. I bought the Jan 22 SPX 2000/2005 call spread for 65 cents. If the market gets bullish, it could move quickly, so I want to be a bit ahead of the curve with a bullish call spread.
Besides the VIX signal, the VXST also traded below the long-term volaitility measures. This is a new signal that reinforces the bullishness of the VIX signal.
With the SKEW at 138, and still in this wildly elevated state since September, its hard to see a very long term change in the markets bearishness yet. We need the Skew to come down and the Put/Call ratios to roll over to buy signals before the market attempts a real bullish run. Those signals are still being set up.
The VIX has closed more than 3 points of its intraday high of Friday, so I entered a very bullish trade with defined risk. I bought the Jan 22 SPX 2000/2005 call spread for 65 cents. If the market gets bullish, it could move quickly, so I want to be a bit ahead of the curve with a bullish call spread.
Besides the VIX signal, the VXST also traded below the long-term volaitility measures. This is a new signal that reinforces the bullishness of the VIX signal.
With the SKEW at 138, and still in this wildly elevated state since September, its hard to see a very long term change in the markets bearishness yet. We need the Skew to come down and the Put/Call ratios to roll over to buy signals before the market attempts a real bullish run. Those signals are still being set up.
Thursday, January 7, 2016
A New Year's worst start
So, now its official! This year has begun worse than any year in market history.
Most of the moves have been in the overnight action. You can see this based on where the SPY (and ETF that tracks the SPX) opens every morning. In the first 4 days of trading, the overnight moves have combined for about 100 points drop in the SPX. which is the entire loss from last Friday's close. The media blames China... as most of the move comes when Asian markets open and trade (if even shortly, as China has been closed twice during the week).
Fascinatingly, during US trading hours the market traded positively on Monday and Tuesday, and flat on Wednesday and Thursday. So if we look at the US action, the markets are relatively bullish if viewed from the perspective of intraday trading. The US is basically, fading the overseas move.
So, when will this rout end? We need to look at how oversold the markets are. The VIX is spiking, but still not very high in absolute terms at around 25 today. The SKEW keeps printing numbers above 135, so its not confirming a bottom yet. What is giving a set up that could be interesting soon is the term structure of the volatility indexes. We have short term volatility now trading higher than volatility measures further out. This does not occur that often, as shown by the green arrows in the chart below. When volatility indexes revert back to a normal structure (longer term volatility trading higher than shorter term volatility), markets get bullish very fast. I will be trying to catch that move.
On the same chart, I have marked pink horizontal lines corresponding with the low levels of the volatility indexes. Since the September spike, volatility has remained high. Until we see the volatility break down below this new support area, a new high on the indexes will not come. Trading call verticals looks to be much easier in 2016.
There are two indicators that already show the market is in an very oversold state. The first is the number of stocks trading above their 20 day moving average (chart below). Again, this number is less than 20% of all stocks, which does not last long without the market bouncing higher for a few days.
Finally, market breadth is extremely bad currently. TRIN was above 2 for most of the day yesterday and today 90% of all stocks may have traded down. These can both signal short bounces in the $SPX.
As I write this the futures are spiking higher - up 1% in a flash move - probably China is doing some intervention finally to stop the bloodshed. Lets see if next week's options expiration's week turns out positive.
Most of the moves have been in the overnight action. You can see this based on where the SPY (and ETF that tracks the SPX) opens every morning. In the first 4 days of trading, the overnight moves have combined for about 100 points drop in the SPX. which is the entire loss from last Friday's close. The media blames China... as most of the move comes when Asian markets open and trade (if even shortly, as China has been closed twice during the week).
Fascinatingly, during US trading hours the market traded positively on Monday and Tuesday, and flat on Wednesday and Thursday. So if we look at the US action, the markets are relatively bullish if viewed from the perspective of intraday trading. The US is basically, fading the overseas move.
So, when will this rout end? We need to look at how oversold the markets are. The VIX is spiking, but still not very high in absolute terms at around 25 today. The SKEW keeps printing numbers above 135, so its not confirming a bottom yet. What is giving a set up that could be interesting soon is the term structure of the volatility indexes. We have short term volatility now trading higher than volatility measures further out. This does not occur that often, as shown by the green arrows in the chart below. When volatility indexes revert back to a normal structure (longer term volatility trading higher than shorter term volatility), markets get bullish very fast. I will be trying to catch that move.
On the same chart, I have marked pink horizontal lines corresponding with the low levels of the volatility indexes. Since the September spike, volatility has remained high. Until we see the volatility break down below this new support area, a new high on the indexes will not come. Trading call verticals looks to be much easier in 2016.
There are two indicators that already show the market is in an very oversold state. The first is the number of stocks trading above their 20 day moving average (chart below). Again, this number is less than 20% of all stocks, which does not last long without the market bouncing higher for a few days.
As I write this the futures are spiking higher - up 1% in a flash move - probably China is doing some intervention finally to stop the bloodshed. Lets see if next week's options expiration's week turns out positive.
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