Inflation & Crude Oil

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VIX Futures Premium

VIX futures premium ended at 8.80% in the yellow caution zone vs. 15.72% on May 7. May futures will expiring Wednesday so the premium will likely move back into the bullish green zone as the VIX declines faster than the futures.

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

VIX - VXST Spread

While the VIX Index is calculated using monthly options with 30 days to expiration VXST uses options with 9 days to expiration and includes options that expire in one week making then more sensitive to changes in short term implied volatility.

Typically, the spread is positive with the VIX higher than the VXST. Caution signal are produced when negative as short-term implied volatility increases faster than the standard 30-day measure. Consider it like an options sentiment indicator. Last week the spread was negative every day until Friday when it turned positive again ending at 1.40. The chart follows.

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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, headed south last week declining 153.35 points of -20.44% ending at 597.06 and below the 50-day Moving Average at 641.04. Turning this reliable indicator is more like changing the course of a crude oil tanker at sea than the more sensitive options indicators; it takes awhile. However, any further decline should worry the bulls.

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WTI Crude Oil (CL) 65.37 basis June futures closed the week up .47 points or +.72%. Cash ended Tuesday, May 11, at 65.28 down .87 for the week as shown in the chart below.

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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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