« February 2022 »

IVolatility Trading Digest™

Volume 22 Issue 9
Technical Tales [Charts]

Technical Tales [Charts]

For the S&P 500 Index two potential technical patterns emerged last week. The first a large Head & Shoulders Top that came real close to activation on Thursday. The second, an Elliott 5th wave bottom. Details follow in the Market Review along with our customary indicators followed by a Stock Sentiment trade idea for Newmont Corporation (NEM)

Review Notes
S&P 500 Index
(SPX) 4384.65 gained 35.78 points or +.82% last week after trading down to 4114.65, well below the January 24 low at 4222.62 on Thursday before reversing and bouncing back to close up 63.20 points on the day. Friday the gain continued adding another 95.95 points. There seems little doubt Thursday's geopolitical news triggered a short covering reversal.

At the close on Wednesday, a big potential double bottom would have appeared if it held above the January 24 low at 4222.62, but a lower close would activate a much larger Head & Shoulders Top from the January 4 high at 4818.62, with a measuring objective down at 3625, well into a bear market.

On Thursday, it opened at 4155.17, well below the neckline of the threatening Head & Shoulder Top pattern that would activate should it close under 4222.62 as the bears pressed sell buttons. However, sentiment quickly changed; it reversed and closed higher renewing the potential double bottom interpretation while negating the possible Head & Shoulders Top for now.

An Elliott wave interpretation offers an alternative to the Head & Shoulders Top. Wave 1 down to 4582.24, followed by wave 2 up to 4748.83, then wave 3 down to 4222.46, followed by wave 4 up to 4595.31 and finally wave 5 down to 4114.65 on Thursday before reversing. If so, expect an a-b-c counter move higher that would likely take it back above the 200- day Moving Average now at 4460.74.

Review Notes
CBOE Volatility Index®
(VIX) slipped .16 points or -.58% last week ending at 27.59. 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, dropped .38 points or -1.57% ending at 23.75%. On Wednesday, it made a 52-week high at 27.20 before turning lower Thursday when SPX reversed as shown in the charts.


VIX Futures Premium

VIX futures premium ended last Friday at -1.62% in the red bear zone where it stayed for the entire week vs. +.54% for the previous week in the yellow caution zone with 15 days before March futures expire.


The chart reflects the distance from the VIX to the futures curve computed from the two front month contracts. 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.

Market 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 continued lower last week ending down 115.89 points or -19.05% closing at -724.39, but up 6.81 points on Friday. A continuation higher increases the probability that Thursday's reversal and Friday's continuation marks the start of a meaningful bounce, an encouraging thought for the bulls. The chart shows the March 2020 low on the left.


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Emerging Trend

While it may be premature to declare new sustainable trend began last week our algos did their job identifying this breakout found in Options Data Analysis and Rankers & Scanners sections on our front page that displays results from the Underlying Sentiment Analyzer included with all IVolLive packages.

On Friday, the top pick from our Stock Trend Analysis:

Newmont Corporation (NEM) 67.90 up .23 points or +.34% last week in an uptrend that began in late November last year although still below May 2021 high at 73.32.

For a trend continuation idea before breaking out above the previous high, consider  long call spreads such as long an April 67.5 call at 3.25 and short an April 72.5 call at 1.46 for a debit of 1.79  (36% of the width between the strike prices) as of Friday's closing prices.


Review NotesWith the FOMC meeting in just over two weeks on March 15-16, debate and speculation will intensify if the increase will be 25 bps points or 50 bps. Some pundits claim recent geopolitical turmoil will tip the scale in favor of just 25 bps despite already high inflation that could rise even more while adding support for equities.

Accordingly, consider following the rule of unknowns by initially positioning portfolio holdings for both up or down markets, and then adjust, and hedge until the direction becomes apparent.

Remember the old market adage "if it's in the press, it's in the price."


Last week the S&P 500 Index came close to activating a large Head & Shoulders Top pattern with a measuring objective down in bear market territory. Thursday's dramatic reversal followed by Friday's continuation higher ended the treat for now while converting the operative technical pattern into a potential double bottom or perhaps even a completed Elliott 5th wave. The extent of resistance at the 200-day Moving Average will help decide if it can continue higher. Traditional inflation hedges like crude oil and gold reflect geopolitical uncertainty as well as the Federal Reserve's resolve to moderate inflation.

By Jack Walker

Regularly check the Stock Trend Analysis and Best Calendar Spread ideas updated daily in the Ranker and Scanners section on our front page. 

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 Digest will again feature our Market Review.

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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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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