Crude Oil Jolt

Crude oil returns to the spotlight after a Saturday attack on Saudi crude oil processing facilities. Along with China trade news and the upcoming FOMC meeting on Wednesday, this should be a busy week. Assuming the crude oil risk premium increases, spread ideas for SPDR S&P Oil & Gas Exploration & Production ETF (XOP) follow the Market Review.

S&P 500 Index (SPX) 3007.39 gained another 28.68 points or +.96% last week but failed to close above resistance at the upward sloping trendline, USTL shown in the chart below. Should it continue tracking the trendline higher it will soon encounter more resistance from the previous July 26 high at 3027.28 marked with a blue arrow. Because pullbacks have followed new highs since the June correction, another seems likely and may begin soon if crude oil prices increase dramatically.


The measuring objective for the breakout from the range above 2940 is determined by adding the height of the pattern to the breakout [(reversal point 2 high 2943 - Aug 5 low 2822) + 2940)] =3061. However, assuming it overcomes potentially higher crude oil prices, the previous high at 3027.98 makes a tempting selling target.

CBOE Volatility Index® (VIX) 13.74 declined 1.26 points or -8.40% 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, declined 1.04 points or -8.64%, ending at 11% vs. 12.04% for the week ending September 6, below the recent 15-20 range heading back down toward 10%.

Previously when reaching 10% it quickly rebounded as if it's too hot to handle as the SPX turns lower. As the SPX struggles with resistance from the upward sloping trendline and the prior July 26 high, reasons to believe it will be any different this time are limited. The message here: prepare for another pullback soon.


VIX Futures Premium

The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second-month futures contracts.

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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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