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1080 is Critical

Fri, 20 Nov 2009 18:15:16 +0000

Larry McMillan’s weekly market commentary:

SPX Through 11-20-09

The positive news was that $SPX broke out over 1100 last Monday, convincingly moving well above that resistance level, and doing so with strong volume (a 90% up volume day). The negative news is that the breakout is in jeopardy of becoming a false one. Near-term support exists at 1080-1085.

From an intermediate-term point of view, the $SPX chart remains bullish because the uptrend line connecting the major lows is intact and still rising. Furthermore, the series of higher lows is still intact.

Market breadth has given another sell signal — the third one since November 10th. These repeated sell signals are a sign of the deterioration in the overall market. These sorts of things can persist as tops are “rounding” affairs.

The equity-only put-call ratios have still not completely shaken off the effects of the massive put hedging purchases that have taken place since July, 2009. These ratios have remained in very tight ranges over the past couple of months.

VIX Through 11-20-09

Volatility indices, however, are still quite low. Thus, the trend of volatiltiy remains downward and that is bullish. Even with today’s rather sharp selloff, $VIX was only slightly higher.

In summary, the $SPX chart is intermediate-term bullish as are the volatility indicators, but a close below 1080 would be short-term negative — likely signaling the next correction, as confirmed by the sell signals in the breadth oscillators.

Down 45 – Not Serious – Yet

Fri, 02 Oct 2009 20:28:19 +0000

Larry McMillan emphasizes here the price action of the S&P 500 and the VIX’s behavior.

SPX Through 10-2-09

For the first time since the July lows, $SPX has etched a lower high, lower low pattern. This might not be the start of a serious downtrend, but it is certainly a “warning shot” of sorts. On the first trading day of September, the market plunged and then rallied strongly. The bulls hope that will happen again here in October, but the technicals are not as favorable now as they were a month ago.

As far as the $SPX chart is concerned, there are several levels of support which are important. The first level is where $SPX is right now — at 1030. That is where the market topped in August. Below that, there should also be support at 1010, and then 980-990, at the August and September lows. As for resistance, the major resistance is the 1070 level. Any close above there would put the market back in full bullish mode.

Equity Only Weighted Put Call Ratio Through 10-2-09

The equity-only put-call ratios remain on sell signals. Market breadth has been very strong all along since March, but has now turned negative,as declines have outnumbered advances on 7 of the last 9 trading days. As a result, sell signals have been registered.

VIX Through 10-2-09

Volatility indices ($VIX and $VXO) have been inflated for some time. However, that did not stop them from bolting higher today, and once again they have violated their bullish downtrend lines. Only if a true uptrend develops in $VIX would it be considered a sell signal for the broad market.

In summary, a correction is underway, and it is minor so far (40 $SPX points). So far, indicators have reacted modestly to the decline, as they are expected to do. However, if $SPX 1010 is violated, and if $VIX continues to trend higher, then a more bearish outlook would be warranted. On a more positive note, if $SPX holds at support and perhaps true buy signals are generated by the breadth indicators, then the bulls would assume control once again.

VIX at Seasonal Cycle Low

gyatz — Sun, 21 Jun 2009 20:38:45 +0000

From VixAndMore by Bill Luby

With the VIX now getting comfortable in the 20s, there has been a fair amount of discussion about just how low we can expect the VIX to go in the next few months.

Back in April, in The New VIX Macro Cycle Picture, I predicted that the VIX will likely not drop below the 25-27 area in the current bull market. That prediction has held up so far, but will almost certainly be tested during the summer months.

Most investors tend to think of the summer season as something of a horse latitudes of sorts for trading, with volume tailing off, portfolio managers on vacation and stocks sometimes set to cruise control. As a result, most people equate summer with lower volatility.

While the VIX does tend to follow a distinct seasonal cycle, the truth of the matter is that we are now at the seasonal cycle low, with volatility historically increasing dramatically from June through October. In fact, over the course of the past two decades the increase in volatility has been highest from June to July, increasing by over 10% (1.82 points.) The pattern is quite distinct in the chart below, which shows composite monthly volatility from January 1990 through last month, using 100 as the series mean.

So…while volatility may indeed trend lower as some of the concerns about the global recession are put to rest in the next few months, lower volatility will have to counter the established seasonal cycle.

For some previous posts on the same subject, try:

The VIX Annual Cycle (12/24/08)
A Month By Month Look at the VIX (1/31/07)

[graphic: VIXandMore]

Disclosure: Neutral position in VIX via options at time of writing