« July 2018 »

IVolatility Trading Digest™

Volume 18, issue 30
Tech Sector Rotation [Charts]

Tech Sector Rotation [Charts] - IVolatility Trading Digest™

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To say it was just rotation out of the tech sector seems to understate Friday's rush for the exit selling frenzy. Imagine a herd of cattle stampeding toward a small opening in the fence. Some will say it's about time, others will probably say it's just an opportunity to buy the pull back. Both are mostly likely right. What's not yet clear is whether rotation into previously oversold sectors such as consumer staples, utilities and the emerging markets will be enough to prevent any serious damage to the S&P 500 Index. Some thoughts along with ideas from our Stock Sentiment Ranker follow.

Review NotesS&P 500 Index (SPX) 2818.82 added 16.99 points or +.61% for the week while getting hit with a 18.62 point loss Friday on the tech rout. The range between 2800 and 2790 should provide some support followed by the 50-day Moving Average down at 2761.62 then the operative upward sloping trendline (USTL) from the April low at 2725.

Here is an update to the rotation indicator introduced last week.

XLY Consumer Discretionary/ XLP Consumer Staples Ratio.


Having closed below the upward sloping trendline (USTL) from December this indicator confirms "Risk Off" rotation activity. Consumer Staples, Financials, Utilities and selected oversold emerging markets will have their day in the sun for awhile.

VIXCBOE Volatility Index® (VIX) 13.03 up just .17 points or +1.32% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, gained a bit more adding .25 points or +2.82% to 9.13.


VIX Futures Premium

The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts. With 17 trading days until August expiration, the day-weighted premium between August and September allocated 68% to August and 32% to September for a 12.34% premium, in the bullish green zone between 10% and 20%.

The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. Previously declines below 10% and advances above 30% were unstable. However, for the last six months it's been struggling to stay above 10%.


12.34% vs. 12.31% last week ending July 20, 2018.

Stock Sentiment Ranker - ETFs


We set the Stock Sentiment Ranker on the ETF group with RSI and Chaikin Money Flow set with 5 weights and a minimum of 5K option volume. The results show the relative out performance of the previously oversold markets and sectors with iShares MSCI Brazil Capped ETF (EWZ) at the top followed by iShares MSCI EAFE (EFA) that tracks the performance of 21 countries in Europe, Australasia and the Far East. While all have adequate options volume here is comparative data for the top 6.


Where IVXM is the Implied Volatility Index Mean, Range is the current IXVM relative to its 52 week range and where 0 is the low as shown for iShares iBoxx $ High Yield Corporate Bond ETF (HYG). PHV is the Historical Volatility calculated using the range method and Ratio compares the IVXM to the PHV where the lower values are less expensive by this measure such as Financial Select Sector SPDR (XLF) at 1.15. Then "5 day o vol" shows the average options volume for the last 5 days. While the options volume for Consumer Staples Select Sector SPDR (XLP) is less than ideal from a liquidity perspective, the others all have good volume and liquidity.

While contrarians may be attracted to Brazil EWZ, both EFA and EEM reflect the recent recovery in China.

Those looking for long ideas while technology declines may want to consider long call spreads with defined risk.

Big Data? In options we are Big Data!

Intraday Historical Options Data Now Available

More information or just fill in this data form to request a quote.

To highlight the "Risk Off" rotation underway the top ranked individual stock Friday, using the same bullish criteria for the entire US market was oversold Altria Group Inc. (MO) 57.90 up .26 points or +.45% for the week.

The remarkable Stock Sentiment Ranker can also be set to scan for "Bearish" stocks and ETFs using SP500 stocks, All USA, NASDAQ stocks or several other preset groups. In addition, the scan settings can be altered to give more weight to the moving average using EMA Pattern or perhaps the Call/Put Ratio. Using My Favorites, it can also scan user defined groups such as Current Portfolio, Watch List or ETF GRoup as shown in the sample above. For active traders and investors it's a real money making time saver.


Although the S&P 500 Index continued higher last week, rotation into previously oversold "Risk Off" sectors including the emerging markets is well underway as indicated by the XLY/XLP ratio indicator. Perhaps rotation into more defensive sectors will be able to contain the damage done by wholesale tech sector selling last week by high frequency traders, called “Algo Rotators" and perhaps a few others as well.

Twitter Follow us on twitter for more ideas from our scanners and other developments.

Actionable Options™
We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.

Next week the market review will report if the rotation selling has been limited to the tech sector or something more serious than tech sector profit taking.

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 always, 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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