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Today


IVolatility Trading Digest™


Volume 21 Issue 13
Sell the Bounce? [Charts]

Sell the Bounce? [Charts]

Review Notes


Based upon the S&P 500 Index making a new closing high on Friday equities appear constructive, with some sectors doing well while others lag. So buy the dip or sell the bounce? It all depends on the sector. The Market Review explains along with comments about last week's Powell and Yellen remote "Dog and Pony Show."

Review NotesS&P 500 Index (SPX) 3974.54 advanced 61.44 points or + 1.57% last week after churning up and down until Friday when it bounced up off the 50-day Moving Average to make an new closing high just .42 points above the previous closing high made on March 17. On Thursday, it traded below the 50-day Moving Average but then closed back above it rebounding in a late-day rally. Support at the 50-day Moving Average held once again as the perennial bulls knew it would.

Invesco QQQ Trust (QQQ) 316.00 added 3.25 points of +1.04% last week but it still closed below the almost flat 50-day Moving Average at 320.61 that halted the attempt to overcome resistance on Monday and Tuesday for the third time. For March with three trading days to go, Technology, Communication Services and Consumer Discretionary sectors, with many richly valued high-growth stocks, some without earnings, are on the bottom. It appears QQQ and some constituents are being sold as they bounce up with money rotating into cyclicals such as Industrials and Materials along with Utilities considered as a bond alternative with yield and some inflation protection, that's now becoming increasingly important.

Review NotesCBOE Volatility Index® (VIX) 18.86 dropped 2.09 points or -9.98% 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 1.86 points or -11.63% ending the week at 14.13%, and a bullish 52- week low, or a caution sign from a return to the mean perspective around 17%, as shown in the following six month chart.

table

VIX Futures Premium

On Friday, this coincident indicator finished at 17.02%, further into the bullish green zone between 10% and 20%, vs.14.28% for the week ending March 19.

table

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.

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, declined every day last week, but by Friday the rate of decline slowed, ending at 512.93, for a loss of 156.61 points or -23.40% . Perhaps reflecting rotation activity, it's one reason to stay cautious.

table


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


Strategy

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.

Federal Reserve Chairman Powell and Treasury Secretary Yellen , called the Bobbsey twins, * since they have the same opinions, spearheaded a media blitz along with other Federal Reserve officials to assure the markets that ultra supportive monetary and fiscal policy, that former Treasury Secretary Larry Summers called the "least responsible" macroeconomic policy in the last 40 years, will continue. Powell even turned to the non-financial National Public Radio’s “Morning Edition” program on Thursday, to say any change in monetary policy would happen "very very gradually over time and with great transparency, when the economy has all but fully recovered." It all seemed like an orchestrated jawboning effort to keep long interest rates from rising. However, the bond market may take matters into their own hands as inflation increases.

* From the characters in a long-running American series of children's books (1904–1992), written under the pen name Laura Lee Hope. We called them the Bobbsey twins, because they always had the same opinions.

ProShares UltraPro Short QQQ (SQQQ) 13.53 down 48 points or -3.43 % last week. At 3X short QQQ, it slid under the 50-day Moving Average at 13.60. Until it closes below 13, the trigger point to close this position, according to the original trade plan in Digest Issue 10 "Bumpy Ride [Charts]," it seems prudent to keep this hedge position open until QQQ closes back above resistance at its 50 -day Moving Average.

Summary

Federal Reserve Chairman Powell and Treasury Secretary testified at House of Representative and Senate hearings on Tuesday and Wednesday. The S&P 500 Index declined slightly both days but recovered Thursday after challenging the 50-day Moving Average and then spiked higher Friday. Powell and Yellen's PR offensive seemed over the top as if they needed to convince a skeptical audience. With the exception of market breadth, the indicators ended the week 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 more Market Review with another look at crude oil.

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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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".