SPX futures reached a morning low at 6616.30, well beneath the 52-day Moving Average at 6699.30 and on a confirmed sell signal.  It has also crossed the neckline of the Head & Shoulders formation at 6650.00, possibly triggering that formation.  The next possible bounce level is round number support at 6600.00, which may not last.  The reason?  Trending strength is growing and may turn the decline into a panic as monthly options expiration approaches on Friday.  Liquidity is still at a premium and the repo market may be stressed as a decline may put added demands on private lending institutions (banks).

Lance Roberts of RealInvestmentAdvice offers, “Last week, we discussed the importance of “math” as it relates to valuations and noted the importance of understanding “full market cycles.” To wit:

“The math on forward return expectations, given current valuation levels, does not hold up.  The assumption that valuations can fall without the price of the markets being negatively impacted is also grossly flawed. Historical data, as illustrated in the following chart, suggest that valuations do not decline without a significant impact on investment returns. Additionally, it is worth noting that “full market cycles,” which encompass both secular bull and bear periods, recur throughout history.””

Today’s options chain shows Max Pain at 6700.00.  Long gamma may begin at 6735.00 while sort gamma rules beneath 6670.00.

VIX futures reached a new high at 23.91 this morning on a buy signal as trending strength builds toward options expiration.  There is little commentary on the VIX as it appears to be in a two month consolidation.  However, common recognition of a VIX bull market may arise above 25.00.

The November 19 monthly options expiration shows Max Pain at 21.00 in the VIX.  There are massive holdings of short gamma between 15.00 and 20.00 while long gamma may begin at 22.00.  Institutional positions are  noted at every 5 points starting at 25.00 with a presence to 100.00.
 

TNX is finishing its correction in a decline, possibly to Intermediate support at 40.70 this week as equities investors may be rotating out of stocks and into treasuries.  It may not prove to be a safe haven as the rally may resume with vigor early next week.

More By This Author: