Baffling Breadth

Due to its importance as an indicator of the overall market condition and not necessarily useful for exact market timing, a focus on market breadth will continue until it improves or drags the entire market lower. How could that be a concern after a week of higher highs every day except Thursday? The Market Review explains.

S&P 500 Index (SPX) 4509.37 gained 67.70 points or +1.52% last week making the best weekly gain since July 23 when it gained 1.96%. With higher closing and higher intraday highs three out of five days, including Friday the upward momentum continues at a steady pace after renewing the uptrend as it closed above the August 16 high at 4480.28. The infallible (at least so far) 50-day Moving Average at 4377.71 should provide support should an unexpected the pullback occur.

Invesco QQQ Trust (QQQ) 376.04 added 8.31 points or +2.26% breaking out into new high territory gaining more in percentage terms than the SPX and highlighting the outperformance of big-cap stocks. Now back above a new operative upward sloping trendline, USTL from the May 18 low at 316.20 one that's close to the 50-day Moving Average at 362.31, it's also a solid support level on any unexpected pullback.

CBOE Volatility Index® (VIX) declined 2.17 points or -11.69% last week to end at 16.39. 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, slipped 2.29 points or -17.60% last week closing at 10.72%, compared to 13.01% for the week ending August 30 and again approaching the June 25 low at 10.32%. – All bullish.

Our estimate of the mean for the relevant range begins on June 5, 2020, at 19.70% and slopes downward, ending Friday at 15.87%.


VIX Futures Premium

VIX futures premium on Friday ended at 21.94%, well into the green bull zone with 16 days before front-month September futures expire. Last week's lower volume suggests less hedging activity.

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Disclaimer: 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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