Index Option Trader

SPX and VIX Three Month Futures Premium

August 28, 2008 – 1:21 pm
From Vix and More: Friday’s post, VIX Slips Below 19, appears to have raised some interest in VIX futures premiums (or “premia” for the more scholarly inclined). Looking three months out, the VIX November 2008 futures contract (VIX/X8) has been open since November 2007 and reached a settlement high of 26.25 on March 14, 2008, just before the bottom of the equities market. By contrast, the all-time settlement low for the VIX November futures contract was 21.35 on May 2, 2008, a month and a half after the markets moved off of the March bottom and about two weeks before the markets topped. These VIX futures peaks and valleys just happened to precede important intermediate-term market tops and bottoms and may have hinted that a reversal was coming soon, in a manner similar to that of the VIX:VXV ratio. Keep in mind that the VIX:VXV ratio is a ratio of the VIX (CBOE ...

Posted in Equities, General Commentary | 1 Comment »

It’s a Rally — But in a Bear Market

July 26, 2008 – 7:10 pm
From Barrons: THE STOCK MARKET HAS FOUND A BOTTOM -- but not the bottom. So enjoy this rebound while it lasts, because it looks like a bear-market rally. Reasons to expect further gains include the intensity of buying seen over the past week in the most beaten-down sectors -- banks, brokers, mortgages and even home building. While former leaders, most notably energy and basic materials, have had a very rough month, money leaving these groups has found new homes. This sector rotation is a very healthy condition for the stock market. But the most compelling argument for continued short-term strength I see is the dollar. As I wrote in this space a week ago (see "The Dollar Holds the Key," July 16), as long as the greenback stayed weak, U.S. financial assets were fighting an uphill battle. But the technical breakdown in the dollar failed, and now the currency is showing signs of ...

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Lehman, Deutsche Bank Strategists Predict Best 6 Months for S&P Since 1982

July 7, 2008 – 7:40 pm
From Yves Smith over at Naked Capitalism: "Since I seldom am the bearer of upbeat news, I thought I'd pass along the cheery forecast from market strategists at Lehman and Deutsche Bank, namely, that the Standard & Poor's 500 index will have its best six months since the second half on 1982 in the second half of 2008. I happen to remember that period. The markets had been though a grinding loss of faith in securities, not just stocks. Philip Brothers, a commodities broker, had bought the storied Salomon Brothers; Goldman had done a reactive deal, a purchase of a commodities trader, J. Aron, which turned out to be a horrifically bad deal on any cashflow analysis (commodities went promptly into retreat shortly after the deal was concluded; J. Aron was soon hemorrhaging cash and pink slips) but in the very long term helped Goldman's strategic position. The few fixed corporate bond ...

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July 3rd Market Action - SPY, IWM, XLF

July 3, 2008 – 5:01 pm
Where to begin... The SPY Iron Condor was put out this month will a slightly bullish bias as it is our opinion that we are due for a bit of a correction to the upside. We have oversold readings across the broad markets and a classic triple bottom setup. Now, we expect a bounce to the upside in the coming sessions, but have insured our positions with a cushion to the downside as well. The reason that we may see a decent lift here is tied to the XLF (Financials) ETF. The XLF is testing near 10 year lows and is hovering at just about the $20.00 level, which also serves as a key psychological level. If the XLF's can hold the level over the next couple of sessions coupled, we may see a lift in the rest of the broad markets. XLF Monthly Chart: Red Support line near $20.00 testing ...

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Wall St. & Business News – June 10th

June 10, 2008 – 5:37 pm
With oil edging over closer to the elusive $150 price level, July crude settled a bit further away at $131.31 a barrel. A rebound in the U.S. dollar and weakening demand pressured crude prices down $3.04 in today’s session. According to the State Energy Department, crude demand is projected to scale back, cutting the current output by 240,000 barrels a day in 2008. OPEC nations are also reported to have increased oil output in this current quarter by roughly 500,000 barrels a day which may ease the recent spike in fuel prices. Fuel prices by the same accord have risen to a national average of $4.043, a number derived from benchmark statistics of average prices from organizations such as AAA and Oil Price Information Service. Recently, a Goldman Sachs analyst projected that crude will reach $150 a barrel by July 4th. If realized, average prices of gas could be driven up ...

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A Case For The Bulls?

March 17, 2008 – 9:51 am
For all of you contrarians out there, check out this 1.50 CBOE Equity Put/Call Ration intraday! Reversal anyone?SHARETHIS.addEntry({ title: "A Case For The Bulls?", url: "http://www.indexoptiontrader.com/blog/2008/03/17/a-case-for-the-bulls/" });

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Double Bottom SPY - Possible Bounce?

March 13, 2008 – 9:49 pm
With the recent lift, albeit possibly temporary, there is no doubt that the SPY is in fact forming a classic double bottom pattern. According to technical analysis, a double bottom is usually indicative of a lift, with the target price being at the distance between the top and bottom of the swing high and the double bottom, to the upside. The chart below shows the setup: While we know that this setup seems unlikely to play out as problems with "insert favorite economic doomsday scenario here" are still on investors minds. BUT.. but we may get some type of lift in the coming weeks, as the Fed will be making big moves at the monster truck rally on the 18th. Whether or not these cuts have been priced in, as I stated before, is still unclear. S&P came out saying today that the "END IS IN SIGHT!" in terms of the ...

Posted in Equities, General Commentary, Indices | 1 Comment »

Here We Go Again.. Retest

March 10, 2008 – 10:05 pm
As many of you know, the major indices are at a pivotal, well...pivot. The SPY, IWM and others are in a position to retest the swing lows set in January 08. The SPY is set to retest the 127.50 levels, and the IWM at the 64.50 levels. We may see a slight bounce here to the upside if support holds, as the 2-period RSI reading for both the SPY and IWM ETFs are very oversold on a short-term basis. Variables such as a surprise Fed rate cut, the high Equity Put/Call ratio, and Q1 earnings projection may provide some basis for a lift across the broad markets. Then again, we have $107 oil, the dominant credit problems, and a slew of other unfavorable macroeconomic conditions, so breaking through support may ensue in the coming days.  While Fed funds futures point towards a 98% chance of a 50 BP cut, whether ...

Posted in Equities, General Commentary | 1 Comment »

Get Long? Yes, You Read That Right.

March 4, 2008 – 7:25 pm
I may not be the first to say it, but I certainly won't be the last... it may be time to get long. Reference the image below: While at first glance this chart looks intimidating, its not. The red and black area indicator is the NYSE Summation Index (A popular (or not so much?) market breadth indicator that is ultimately derived from the number of advancing and declining stocks in a given market. Many people regard it as an excellent indicator of the overall "health" of the market and the market's current trend). Above we have a weekly chart displaying the index of choice, the SPY. On top, we have a weekly VIX measurement. Moving on... A cross of the Summation Index into positive territory is usually indicative of the beginning of a bullish trend, while a dip into the negative is usually indicative of a bearish trend to come. As ...

Posted in Equities, General Commentary, Indices | 1 Comment »

Get Shorty

February 25, 2008 – 11:18 am
It looks like we have reached an all time short interest level in the NYSE as of February 15. 14.4 Billion shares is the number of shares short on the NYSE, or 3.8% of the total shares outstanding. For those of you contrarian investors out there, this news should be revving up your bullish sentiments. This news isn't really a surprise given all of the credit/energy/housing problems of late. In terms of the previously mentioned SPY triangle setup, this may bode well for an upside breakout, but we shall see. SHARETHIS.addEntry({ title: "Get Shorty", url: "http://www.indexoptiontrader.com/blog/2008/02/25/get-shorty/" });

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