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IVolatility Trading Digest™

Volume 17 Issue 28
Bulls Still in Charge [Charts]

Bulls Still in Charge [Charts] - IVolatility Trading Digest™

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Review NotesRotation away from previous tech leaders into select laggards such as materials and industrials helped propel the S&P 500 Index to a new closing high. The market review below explains and includes an update for WTI crude oil from the perspective of the Commitments of Traders Report from the CFTC.

Review NotesS&P 500 Index (SPX) 2459.27 advanced 34.09 points or 1.41% for the week breaking out to make another new closing high on modest volume thereby redrawing the upward sloping trendline, USTL from the November 4 low at 2083.79 as it merges with the 50-day moving average once again. While there is support at 2400 on any decline it would have to first close below both the USTL and the 50-day moving average.


StrategySupporting the bullish view both the iShares Transportation Average (IYT) 175.40 and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) 88.53 made confirming new highs as well. Although breadth remains rangebound it reflects sector rotation and can be forgiven for not advancing, unless it begins deteriorating. As for the challenge of keeping up with sector rotation one alternative is to focus on the SPX or SPY but this risks missing a major leadership change with potentially dire consequences. The previous leaders, the PowerShares Nasdaq 100 ETF (QQQ) 142.12 and the Technology Sector Select SPDR (XLK) 56.86 have yet to make new confirning highs and should they fail at their previous June 9 highs bullish market sentiment could be challenged. For QQQ watch 143.51, for XLK it's 57.39.

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Crude Oil Update

Crude OilWTI Light Sweet Crude Oil (CL) 46.54 basis August futures advanced 2.31 points or 5.22% for the week, now up against resistance once again at the 50-day moving average the level where it failed July 5after reaching 47.32.

From the Disaggregated Commitments of Traders - Options and Futures Combined report as of July 11 "Managed Money," the group that best correlates with crude oil price changes and arguably the most important, reduced their long position -6,547 contracts and decreased their shorts +35,251 for a net position increase of +28,703 contracts representing 6.25% of the of the open interest up from 5.17% the week before and up from 4.73 % on June 27at the last pivot.


Although "Managed Money" added modestly to their net long position for the last two weeks the price chart shows August futures testing the downward sloping 50 -day moving average again, the red line below.


From a seasonal perspective, because July is one of the weakest months resistance at the 50-day moving average makes tempting place for speculators to press the short side once again until the end of the month. Then since August is seasonally one of the better months they could begin covering their shorts in an effort to push the price up to the operative downward sloping trendline, DSTL in the price chart above, to about 48.50 by the end of August.

In the meanwhile, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) September long 33/35 call spread and short 29 put combination idea in Digest Issue 24 "Rotation Hammer [Charts]," could still work if the anticipated August advance happens.


While the bulls are clearly in charge of the equity markets the advance appears orderly, making new highs and then pulling back to support around the 50-day moving average then advancing once again. Confirmation of the new SPX high by both the iShares Transportation Average (IYT) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) adds confidence , however tech and semiconductors are lagging and could become an issue if they are unable to exceed their June 9 highs. For now reasons to consider hedging portfolio risk seem few and far between.

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Next week will include trade suggestions along with another market review and another look at crude oil.

Finding Previous Issues and Our Reader Response Request

PreviousIssuesAll previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on the home page of our website.

CommentAs usual, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know at Support@IVolatility.com or use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com website. To receive the Digest by e-mail let us know at Support@IVolatility.com




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