« August 2020 »

IVolatility Trading Digest™

Volume 20 Issue 31
U.S. Dollar Index & Gold [Charts]

U.S. Dollar Index & Gold [Charts]- IVolatility Trading Digest™

While the S&P 500 Index and the Invesco QQQ Trust remain in the spotlight, last week the two primary drivers were the U.S Dollar Index going lower and gold going higher. Both equity indexes ended the week below their respective upward sloping trendlines from their March 23 lows, but not by very much. The Market Review includes the U.S. Dollar Index followed by an update for last week's long call spread idea for VanEck Vectors Gold Miners ETF (GDX).

Review NotesS&P 500 Index (SPX) 3271.12 gained 55.59 points or +.1.73% last week drifting higher, but still below the upward sloping trendline that now represents the first upside resistance it will need to overcome before challenging the second resistance from the from the earlier February 21 -24 gap. On the downside, the 50-day Moving Average at 3137.52 should provide support followed by the 200-day at 3048.56.

Invesco QQQ Trust (QQQ), 265.79, called "the decider," added 10.23 points or 4.00% last week closing Friday on the high for the day after four of the tech big guns reported Thursday. Should it turn lower look for support at 250 and then the 50-day Moving average at 247.99. With Treasuries at record lows, some suggest the big cap secular growth tech companies have assumed a "Risk Off" role.

Review NotesCBOE Volatility Index® (VIX) 24.46 slipped 1.38 points or -5.34% 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, drifted 1.45 points or -6.94% lower, ending below 20 at 19.43%.

Shown on the chart below, the IVXM spiked up to 77.15% on Monday March 16, on the day SPX declined 324.89 points, and likely marks the top for the recent market decline. Based upon regression to the mean theory its arrival below 20% supports the view that the SPX will likely continue somewhat higher.


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 12 trading days until August expiration, the day-weighted premium between August and September allocated 60% to August and 40% to September for a premium of 14.52% into the green bull zone, up from 12.41% on the week ending July 24.

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 August 19.


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.

The relationship of the futures curve to the VIX, as measured by the premium, makes a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds.

Macro Bus


The labels on the passenger's hats are Crude Oil, Gold, Treasuries, and Equities. Other U.S. dollar denominated commodities are in the back as well.

U.S. Dollar Index (DX) 93.32 declined 1.06 points or -1.10% last week. Already trending lower, it dropped .71 points on July 21.


Shown at the arrow as Euro day when the European Commission announced a EU recovery fund, composed of €390 billion in grants and €360 billion in loans, attached to a new €1.074 trillion seven-year budget, the Multiannual Financial Framework (MFF), bringing the total financial package to €1.82 trillion.

On Thursday July 30, The Daily Shot® Brief included a chart with a comment from Goldman Sachs saying, "We expect the Euro area to grow faster than any major country in 2021." So improving Eurozone growth translates into a stronger euro and a weaker U.S dollar.

Friday Bloomberg headline: "For the first time this year, every major currency in the world rose against the greenback."

Gold & Real Inflation Adjusted Interest Rates

In addition to the declining dollar, negative real interest rates benefit gold prices as shown in this chart comparing the London afternoon gold fix price to 5-Year Treasury Inflation Protected Treasuries.


Markets consider gold like a zero-coupon bond, so when inflation-adjusted Treasury yields head lower, gold goes in the opposite direction. Notice how gold gapped higher when the 5-Year TIP opened below zero (above 2020-01 on the X scale). Of course, COVID-19 temporarily changed the picture in March when the TIP yield spike higher, but it quickly turned lower again.

The historical record shows when the U.S Dollar Index starts trending lower and gold start trending higher both trends tend to last a long time.

VanEck Vectors Gold Miners ETF (GDX) 42.94 added 1.11 points or +2.65% last week after opening with a two point gap up open last Monday. According to last week's trade suggestion in Digest Issue 30 "Invesco QQQ Trust Breakdown [Charts]"the long October 16 47/52 call spread (long the 47 call & short the 52 call) was booked at the close on Monday using strike prices two points higher on both sides when the ETF was 43.84, resulting in a mark-to-market loss of .52 (dr1.41 - cr.89).

After closing last Monday's gap up open last Thursday it made a pivot and closed with a higher high and higher low on Friday suggesting the pull back ended. Odds are it will now resume trending higher.

The declining U.S. Dollar Index due to a narrowing interest rate differentials with the euro along with forecasts for improving growth in the Eurozone along with negative real U.S interest rates and the seasonally tendency for gold to advance from August to October all combine to give a leveraged gold position a decent edge.

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Assuming the big cap secular growth stocks, represented by the Invesco QQQ Trust have inherited a quasi "Risk Off" role from Treasuries, despite abnormally high valuations by traditional standards, supports the argument that it may be different this time at least until global growth resumes. Until there are more convincing signs of breaking down, the need to reduce net long exposure in overextended sectors like IT seems less urgent.

Although the U.S Dollar Index rebounded somewhat on Friday, the trend remains to the downside so consider gold and silver EFTs along with the miners such as GDX and remember the Macro Bus.


Since the Nasdaq 100 Index® represented by the Invesco QQQ Trust recovered last week and may have even assumed a "Risk Off" quality the need to reduce or hedge long risk faded. The combination of a declining U.S. dollar, negative real interest rates and a seasonal tendency to advance in August favors gold, and the miners.

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 look at updates for SPX, QQQ and Gold.

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 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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