« May 2021 »

IVolatility Trading Digest™

Volume 21 Issue 19
Employment Surprise [Charts]

Employment Surprise [Charts]

Last week Digest Issue 18 "Not Enough Surprises [Charts]" suggested the lack of response to better than expected earnings reports by widely followed big cap technology favorites surprised very few since the good news was already in their stock prices. However, Friday's report of less than expected job gains of only 266K qualified as a surprise and the markets responded, although perhaps not the way some may have anticipated. The Market Review fills in the details.

Review NotesS&P 500 Index (SPX) 4232.60 came alive last week adding 51.43 points or +1.23% making a new closing high and new intraday high at 4238.04 on Friday. Apparently the weaker than expected employment report means reduced pressure on the Federal Reserve to begin considering a change to their current ultra loose monetary policy giving markets, both bonds and equities, the green light.

With both initial unemployment claims and unemployment benefits declining, Friday's employment report of 266K seems out of line. Some analysts claim the report was an anomaly due to seasonal adjustments and will likely be revised upward with the May report since no other related indicators agree with this surprisingly low number.

The trading range near 4200 that began on April 16 and ended with Friday's breakout should provide support on any near term pullback followed by the area around 50-day Moving Average at 4033.53 should it continue lower.

Review NotesCBOE Volatility Index® (VIX) 16.69 dropped 1.92 points or -10.32% 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, slid 2.04 points or -13.96% to end the week at a 52-week low of 12.57%. The six-month chart below shows the renewed downtrend that began with the spike up in late January. Consistent with new SPX highs declining the IVXM (orange line) confirms the bullish outlook.


VIX Futures Premium

VIX futures premium with May the front month, ended the week at 15.72% in the green bull zone, vs.13.58% for the week ending April 30, also in the green bull zone. May futures expire on May 19 with May 18 the last trading day.


Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. The chart reflects the distance from the VIX to the futures curve computed from the two front month contracts.

Review NotesMarket Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, slowed down in the middle of the week, but turned higher again on Friday.

For the week, it gained 11.72 points or +1.59% ending at 750.41, pulling away from the downward sloping 50-day Moving Average at 640.64. From a trendline perspective, a change in trend appears underway.


IVolLive February 23 Webinar

For those who may have missed our introductory IVolLive New Feature Webinar on February 23, now have a chance to see the rerun. Take a look and then send any questions to support@IVolatility.com


In bull markets, a good strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing, since ordinary pullbacks can become corrections when something unexpected happens. Then corrections can become downturns when something else unexpected happens, and downturns can become bear markets when many unexpected things change medium and long-term fundamentals.

Watch the rotation out of big cap high valued tech stock favorites into cyclicals now included the broad group called "reopening stocks" as the battle between the "buy the dippers," who have been right for a long time, confront institutional selling in a process called distribution that the late market guru Joe Granville once called unloading to the "bag holders." With large positions, this Wall Street adage helps explain the process. "Sell when you can, not when you have to." 


On Friday the S&P 500 Index opened higher and advanced into new high territory again on likely reduced pressure on Jay Powell at the Federal Reserve to take some tightening action after the weaker than expected employment report. While both bonds and equities cheered the news, the euphoria could be short lived if the report turns out to have been an anomaly due to seasonal adjustments. In the meanwhile, both the futures and option indicators remain bullish.

By Jack Walker

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 include a crude oil update.

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

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
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this is truly a great re cap, i delete most such mailings but this was valuable, may i suggest sending this sunday night?

Posted by kamran gill on May 10, 2021 at 11:29 AM EDT

Kamran, Thanks for your kind comment. We need all the encouragement we can get. Due to time differentials we are doing good to get it out on Monday mornings, but also recognize some readers also are in different time zones. We will keep your suggestion in mind. Jack

Posted by Jack on May 17, 2021 at 02:23 PM EDT

Permalink Comments [2]

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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