« August 2018 »

IVolatility Trading Digest™

Volume 18, issue 31
Tech and Trade [Charts]

Tech and Trade [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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Updating last week's opening comment; those who said the stampede for the exit on the July 27 tech sell off was a buying opportunity got it right. Tech quickly recovered and rotation into previously oversold sectors such as consumer staples, utilities and telecom continued. The market review offers more details including a look at two global trade indictors as trade rhetoric intensifies.

Review NotesS&P 500 Index (SPX) 2840.35 added another 21.53 points or +.76 % for the week after support at 2800 held and tech rebounded. The range between 2800 and 2790 continues to provide support followed by the increasing 50-day Moving Average now down at 2771.14, then the operative upward sloping trendline (USTL) from the April low now at 2725. The uptrend continues with the next objective at the previous January 26 high of 2872.87.

Rotation indicator update

XLY Consumer Discretionary/ XLP Consumer Staples Ratio


Now below the upward sloping trendline (USTL) from December and headed lower this important indicator confirms "Risk Off" rotation. Friday's best performing sectors were Real Estate +1.28%, Consumer Staples +1.17%, Utilities +1.03% and Telecom +.93%.

VIXCBOE Volatility Index® (VIX) 11.64 declined 1.39 points or -10.67% 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, declined 1.14 points or -12.49% to 7.99, heading back toward the lows in late 2017


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 12 trading days until August expiration, the day-weighted premium between August and September allocated 48% to August and 52% to September for a 22.03% premium, well into and just a bit above 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.


22.03% vs. 12.34% last week ending July 27, 2018

Big Data? In options we are Big Data!

RT Options Scanner and RT Spread Scanner Live

Information on these two money makers: RT Options Scanner  - RT Spread Scanner


While the VIX Futures Premium looks quite bullish, divergences with the broader market iShares Russell 2000 ETF (IWM) and a declining McClellan Summation Index implies a lack of underlying broad market support as money flows to liquid big cap names especially info tech and rotates into "Risk Off" sectors. However, since there are many large cap liquid stocks in the Consumer Staples Select Sector SPDR Fund (XLP) it's unclear if the divergences will translate into increased risk of selling as S&P 500 Index approaches the previous January 26 high of 2872.87, just 32.52 points away on a closing basis. Perhaps it's worth considering hedging longs with covered calls and even joining the "Algo Rotators" and rotate into "Risk Off" sectors.

Trade Indicators

Two indicators painting different pictures.


According to the Baltic Dry Index, the bulk cargo market for grains and raw materials seems to be doing just fine despite all the trade wrangling between the US and China. Could it reflect stockpiling activity in anticipation of tariffs? Quite likely.

However, the container freight market representing mostly finished goods, tells a different story as shown by the Harper Peterson & Co. container freight index for the last year.



While the S&P 500 Index continued higher last week as the tech sector rebounded along with much improved VIX Futures Premium, rotation into previously oversold "Risk Off" sectors continues as indicated by the XLY/XLP ratio indicator. Perhaps rotation into more defensive sectors will be able to support the S&P 500 Index as it approaches the previous January 26 high but declining breadth implies increasing worry about owning cyclical stocks near the peak of the market cycle.

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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 it's back to the data base searching for more trade ideas.

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




IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

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