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Today


IVolatility Trading Digest™


Volume 20 Issue 47
What Else Happened on November 9? [Charts]

What Else Happened on November 9? [Charts] - IVolatility Trading Digest™

In addition to the Covid-19 vaccine news from Pfizer on Monday November 9, the Russell 2000 Index (IWM ) representing small capitalization stocks broke out to the upside providing more evidence of rotation out of big cap growth stocks. More follows in the Market Review including some seasonal data to consider.

Review NotesS&P 500 Index (SPX) 3557.54 slipped 27.61 points or -.77% last week after making a new closing high last Monday before spending the rest of the week pulling back to support on Friday. The intraday high on the Pfizer vaccine news remains the target for the bulls going into year- end, a period of seasonal strength. On any pullback from an unexpected event should find support around the 50-day Moving Average at 3427.28.

iShares Russell 2000 ETF (IWM) 177.50, up 4.00 points or +2.31% last week became the new "decider," assuming the role previously played by the Invesco QQQ Trust (QQQ) before Pfizer's vaccine news.

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On the November 9, vaccine news it gapped open breaking out above the previous January 17, 2020 high at 168.49. Then last Wednesday, November 19, in show of relative strength it closed above the intraday high made on November 9, an important level and something both the SPX and the QQQ failed to achieve last week.

Invesco QQQ Trust (QQQ), 290.38 slipped .55 points or -.19% last week failing to make a new intraday or closing high suggesting profit taking in big cap growth stocks and rotating into smaller previous laggards. While still above the upward sloping 50-day Moving Average at 281.53, a level that should support any unexpected pullback, it seems likely to underperform on more profit taking and rotation activity going into year-end.

Review NotesCBOE Volatility Index® (VIX) 23.70 nudged up .60 points or +2.60% 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, added .73 points or +3.95% ending at 19.22%, well into the bullish zone when SPX trends higher and until the Covid-19 threat disappears is as good as it gets.

The IVXM and SPX charts.

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The VIX 30-day options minus the VXST 9-day options spread continued advancing,   closing Friday at 3.84. Another bullish indicator.

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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.

With17 trading days until December expiration, the day-weighted premium between December and January allocated 85% to December and 15% to January for a premium of 4.09%, still in the neutral zone. Usually after the near month expires, the premium quickly advances by the end of the week. That was not the case last week after November futures expired although it did advance slightly Thursday. December futures closed at 3.21% with January at 9.07%. The alternative volume weighted premium was 5.64%.

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Since most of the volume and open interest are in the two closest futures contracts measuring the day-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.


All on one page
The Sentiment Analyzer included in all IVolLive packages features a quick reference one-page summary including moving averages, relative strength, Chaikin Money Flow, Correlation, Options IV & HV and more.


Setting the Stage – Rotation

More evidence of rotation out of a small group of highly valued big cap growth stocks increased last week as the iShares Russell 2000 ETF (IWM) outperformed both the SPX and the QQQ. While some considered deep value improved somewhat it looks more like rotation out of the previous leaders into the broader market and not necessarily sector rotation as market breadth continued improving.

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, added another 243.96 points or +70.91% last week ending at 588.02 and trending higher.

Seasonal Strength

Within the last week, Christmas themes with new car advertising returned to television screens signaling the start of the holiday selling season. Equity markets also have a regular seasonal tendency. Smaller capitalization stocks like those in the IWM have one of their best months on average in November. In addition, the 20-year average performance for the S&P 500 Index as reported by commodityseasonality.com increased 1.5% in October, 1.6% in November, and 1.0% in December.

Seasonalcharts.com offers a chart showing how much better the last two months of the year perform relative to the year on average.

Strategy

In bull markets, the strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing. Recent rotation activity suggests profit taking in high value big cap growth favorites rather than sector rotation. Of course, negative Covid-19 news and excessive profit taking still pose some risk.

With a seasonal tailwind, the S&P 500 Index will likely continue up to and test the November 9 intraday high at 3645.99  and then,

  1. Attempt to form a double top or
  2. Exceed the previous high, and start forming a potential H&S Top pattern or
  3. Resume trending higher.

Summary

Last week the relative outperformance of the iShares Russell 2000 ETF (IWM) suggests rotation into previous lagging and some value stocks rather than widespread sector rotation. Market breadth continues improving and with the help of year-end seasonal strength suggests the markets will continue higher, unless unexpected negative Covid-19 news changes the picture.

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's Market Review will include another indicator update.

Finding Previous Issues and Our Reader Response Request

PreviousIssues

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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