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Today


IVolatility Trading Digest™


Volume 19 Issue 4
Top 10 ETFs [Charts]

Top 10 ETFs [Charts] - IVolatility Trading Digest™

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).

Friday's S&P 500 Index advance along with other important indices changed the picture as it appears the operative Rising Wedge could fail, reducing the probability of a meaningful retest of the December 26 bottom. Should it continue higher this important week for earnings reports and more Jay Powell commentary, the bear market label may no longer be applicable. Details follow including updated charts for the S&P 500 Index and Market Breadth as well as our ranker results for the Top 10 ETFs.

Review NotesS&P 500 Index (SPX) 2664.76 declined 5.95 points or -.22% last week, after a gap up opening Friday, then closing 22.43 higher. Now well above the 50-day Moving Average at 2613.88 it appears to be headed for the operative downward sloping trendline from the October 3 high at 2939.80 shown in the chart below.

VIXCBOE Volatility Index® (VIX) 17.42 declined .38 points or -2.13% 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 .38 points or +2.56% ending at 14.41 and still near the bottom of the recent range shown in the updated one-year volatility chart with an SPX line chart below.

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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 February expiration , the day-weighted premium between February and March allocated 60% to February and 40% to March for a 5.17% premium vs. 2.82% the prior week ending January 18. Below the bottom of the green zone between 10% to 20%, it suggests cautionary positioning unconvinced the SPX advance will continue.

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. If there was only one indicator available, this one would be a top contender.

table

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

S&P 500 Index Trendline

Last week it looked like a developing bearish Rising Wedge, but Friday's gap up opening diminished the odds that it will attempt to retest the December 26 low at 2346.58 before attempting to cross back above the downward sloping trendline, DSTL that began on October 3, shown in the chart below.

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In order to change the trend it needs to close above January 18 high at 2675.47, then continue higher and close above resistance at the DSTL that began October 3, now about 2680.


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Foremost Indicator

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, gained 251.57 points or +325.66 % for the week ending at 328.82 having crossed above the 50-day Moving Average on January 10.

table

When the Summation Index turns start looking for other confirming indicators especially trendlines. For now it looks like it will continue higher suggesting the S&P 500 Index will soon close back above the operative downward sloping trendline.

Top 10 ETFs

Here are the results from our proprietary Stock Sentiment Ranker set to find the top bullish ETFs.

table

Top ranked SPDR Gold Shares (GLD) and eight ranked VanEck Vectors Gold Miners (GDX) have both been trending higher since mid November and gapped up at the opening Friday as the US Dollar Index (DX) declined. Number 2 ranked iShares China Large Cap (FXI) made a double bottom between late November and late December. Number 3 ranked iShares MSCI EAFE (EFA) the ETF for Europe, Australasia and the Far East excluding the US and Canada, crossed back above its downward sloping trendline two weeks ago along with the others except for SPDR S&P 500 (SPY) lagging.

Strategy

Review NotesAfter Friday's advance that delayed or ended the Rising Wedge pattern, along with improving market breadth the bear image in this space for the last few issues has been replaced with a small bull. Advances by FXI and EFA suggest improving China and Asia sentiment after comments about new stimulus plans begin considered in China. Gold and the other ETFs were also helped by a declining US Dollar Index. With more comments from Jay Powell scheduled for Wednesday it suggests the markets are expecting a more dovish stance by the Federal Reserve. Should Federal Reserve Chairman Jay Powell disappoint once again, last week's gains could quickly evaporate.

Along that line, the 10-day VIX correlation indicator was suggesting trouble Thursday as it increased to -.16 before declining to -.29 Friday. For example on January 18 the correlation was -.85. In the past this correlation decreased (less negative ) just before short-term pull backs. This means option traders and strategist are more cautious than usual since the VIX was increasing as the SPX advanced while the normal state is for them to move in the opposite direction, that is negatively correlated about -.90.

Although the indicators and ETFs are suggesting a little less bearish and a little more bullish, this should be a defining week with many important earnings reports along with more Jay Powell commentary.

Summary

At the start of last week it looked as if the S&P 500 Index was about to retest the December 26 low as suggested by a potential developing Rising Wedge. However, Friday the picture changed as the US Dollar declined along with news that China was considering new stimulus measures. While the futures and options indicators remained slightly negative, market breadth continued improving enough to challenge the previous bear market call.

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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 more market review along the an update on the progress of the challenge to the downward sloping trendline

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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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.

Our purpose is to offer some ideas that will help you make money using IVolatility. We will also use some other tools that are easily available with an Internet connection. Not a lot of complicated math formulas but good trade management. In addition to Volatility we use fundamental and technical analysis tools to increase the probability of success and reduce risk. We prepare a written trade plan defining why the trade is being made, what we call the "DR" (determining rationale) and the Stop/unwind, called the "SU".