« May 2020 »

IVolatility Trading Digest™

Volume 20 Issue 21
New Upward Sloping Trendline [Charts]

Range Emerges [Charts] - IVolatility Trading Digest™

After we previously jumped the gun about the S&P 500 Index forming a new upward sloping trendline, last week it finally made the grade. The Market Review has the details along with an updated chart. Next, a long call gold spread idea for VanEck Vectors Gold Miners ETF (GDX).

Review NotesS&P 500 Index (SPX) 2955.45 added 91.75 points or +3.20% last week after closing above the top of the trading range on Wednesday before pulling back Thursday and Friday as it approached overhead resistance from the 200-day Moving Average at 2999.72. Closing above the range created a new upward sloping trendline with a more sustainable angle from the March 23 low, while reducing concerns about a potential small double top.


When SPX closed at 2971.61 on Wednesday, and above the April 29 high of 2954.86 and above the top of the range (green horizontal line), it created a new upward sloping trendline from the March 23 low, raising doubt about the Elliott wave 3? However, Thursday and Friday it pulled back to close slightly above the top of the range. Any decline back near the bottom of the range at 2800 (blue horizontal line above) will challenge the newly formed upward sloping trendline.

As a reminder, for uptrends, draw the line from the lowest low, up to the highest minor low point preceding the highest high, so that the line does not pass through prices between the two low points.

Assuming the current advance represents a new uptrend, with the angle of the new trendline from the March 23 low at 40 degrees, another decline toward the bottom of the range seem likely since:

Intermediate uptrends on the daily charts, in a great majority of the issues…rise at an angle of approximately 30 degrees to the horizontal. Some will be a trifle flatter, some a trifle steeper, but it is surprising to see how often the trendline falls very close to the 30-degree slope in stocks of average volatility and activity. – Edwards and Magee, Technical Analysis of Stock Trends, revised fifth edition, p. 242.

Alternatively, if last Wednesday's new high that stalled under the overhead resistance from the 200-day Moving Average and just above the 62% Fibonacci retracement level, marks an Elliott 4 wave, then a close below 2800 would imply an increasing probability of an Elliott 5 wave retesting the March 23 low.

Review NotesCBOE Volatility Index® (VIX) 28.16 declined 3.73 points or -11.70% 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 3.83 points or -13.86%, ending at 23.80%.

The spike up to 77.15% on Monday March 16, the day SPX declined 324.89 points, likely marks the top for this market decline.


VIX Futures Premium

This next chart shows as our calculation of Larry McMillan’s day-weighted average between the first and second month futures contracts as of last Friday.

With 17 trading days until June expiration, the day-weighted premium between June and July allocated 85% to June and 15% to July for a premium of 7.76%, still in the yellow caution zone between zero and 10% , but better than 2.31% on May 15 and now trending higher.


The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month futures contract converges with the VIX at the next monthly futures expiration on Wednesday June 17.

The relationship of the futures curve to the VIX, as measured by the premium, makes a good real-time sentiment indicator.

For daily updates, follow our end-of- day volume weighted premium version located about halfway down the home page in the Options Data Analysis section on our website.

Big Data? In options, we are Big Data!
For a comprehensive review and reminder, check this out
Options: Observations of a Proprietary Trader  

Gold Miners

Although Gold Spot 1,734.68 and the SPDR Gold Shares (GLD) 163.21 along with the VanEck Vectors Gold Miners ETF (GDX) 35.55 all declined in early March along with most everything else, they all rebounded faster and are now well above their February highs, perhaps due to the Treasury rescue packages and the Fed's new QE - unlimited activity.

Review Notes
To join the gold bulls who have been waiting for an entry point consider this long call spread.

VanEck Vectors Gold Miners ETF (GDX) 35.55 down 1.02 point or -2.79% for the week, pulling back after breaking out above a two week consolidation at 34.


With a current Historical Volatility of 44.94 and 42.45 using the Parkinson's range method, with an Implied Volatility Index Mean of 45.34 at .25 its 52-week range, the implied volatility/historical volatility ratio using the range method is 1.07 so option prices are reasonable compared recent movement of the ETF. Friday’s option volume was 149,404 contracts traded compared to the 5-day average volume of 182,710 contracts with reasonable bid/ask spreads.


On Friday, the net debit was .91 (1.99 -1.08). Use a close back below support at 34 as the SU (stop/unwind).


From the perspective of the S&P 500 Index, trading ranges provide definable action levels. On a close below the range, open out-of-the-money protective put spreads. Alternatively, a breakout above the range will activate a new bullish upward sloping trendline as occurred last Wednesday as the Energy sector, at the top of the list gained 3.2%. However, the breakout on just average combined volume of 2.6 bn shares was fleeting as it quickly pulled back.

Although the new upward sloping trendline should encourage the bulls, a breakdown below the lower boundary of the range at 2800 remains equally probable followed by a decline to retest the March 23 low, and the much anticipated Elliott 5 wave bottom as the bears expect citing valuation of big cap technology stocks in the index.

Based on relative strength both gold and the gold miners are far above their February highs likely due to a combination of COVID-19 uncertainty, fiscal support actions and QE - Unlimited from the Federal Reserve, despite continuing U.S. dollar strength.

In the meanwhile, prepare equally for a further advance or another decline as more widely followed equity managers withdraw their support sounding the valuation alarm, leaving the growth at any price managers to prop up the Invesco QQQ Trust (QQQ) 229.66 and the momentum leaders.


Last Wednesday's brief breakout above the trading range was sufficient to redraw a new upward sloping trendline from the March 23 low. However, quickly returning into the range increases the likelihood of another decline to the bottom of the range. The S&P 500 Index advances on days when Energy joins the large capitalization favorites in the Invesco QQQ Trust (QQQ). A close below the lower boundary of the range at 2800 will activate protective puts.

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.

“The best volatility charts in the business.”

Next week the Market Review will again report the status of the trading range.

Finding Previous Issues and Our Reader Response Request


All 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 our website homepage.

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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