Crude Oil Uptrend

Although upward momentum of major indices stalled last week, most of our favorite indicators hardly noticed. Rotation into energy stocks stole spotlight early in the week on news of dramatic crude oil production cuts, especially in the Permian Basin due to extreme harsh weather and power cuts. One report estimated total U.S. production dropped 32%. More details follow the Market Review along with a call risk reversal spread idea for the Energy Select Sector SPDR Fund (XLF).

S&P 500 Index (SPX) 3906.71 slipped 28.12 points or -.71% last week after making a new intraday high at 3950.43 last Tuesday and then closing lower creating another Key Reversal. Wednesday's lower low met the Key Reversal objective. More lower lows and lower highs followed Thursday. Friday it improved slightly making a higher high and higher low than the day before although with a lower close. Should it continue lower expect support around 3850, but it remains well above the uptrend defined by both the upward sloping trendline and the 50-day Moving Average at 3789.00.

iShares Russell 2000 ETF (IWM)  225.19 lost 2.07 points or -.91% last week underperforming SPX Thursday but doing much better Friday with continuing rotation into mid and small capitalized stocks. However, last Thursday tested the upward sloping trendline from the November low suggesting it risks losing the "decider" title unless momentum increases and market breadth improves.

CBOE Volatility Index® (VIX) 22.05 added 2.08 points or +10.42% 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 1.16 points or +7.43% ending the week at 16.78%.

The volatility chart below shows the slight advance back toward what appears as the mean near 20% since May of last year. From this pattern, expect spikes up near 30% on pullbacks followed be declines back toward the mean. However, spikes up above the November high around 32% would begin ringing the warning bell.

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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 ...

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