Die Hard Bulls

Last week's Digest Issue 22 "S&P 500 Index Going Lower [Charts]" got the first part right, there was indeed an oversold bounce. However, by Wednesday the situation changed entirely as it closed above the operative downward sloping trendline. The bulls were having no part of that technical analysis mumbo jumbo indicating it would likely go lower after an oversold bounce. A small updated chart accompanies our regular Market Review followed by iShares iBoxx $ High Yield Corporate Bond ETF (HYG), as an equity alternative, along with VanEck Vectors Rare Earth/Strategic Metals ETF (REMX).

S&P 500 Index (SPX) 2873.34 gained 121.28 points or +4.41% last week, closing above the operative downward sloping trendline, DSTL from the May 1 high at 2954.13 responding to comments on Tuesday from Federal Reserve Chairman Jerome Powell implying an interest rate cut should it be necessary and Mexican officials said they expect to avoid tariffs. The SPX closed up 58.82 points and then followed through on Wednesday adding another 22.88 points, closing above the DSTL marked with an arrow in the chart below. Further advances on Thursday and Friday took it back up to close just below the 50-day Moving Average confirming the change in momentum. Next objective, a test of the May 1 high at 2954.13. It seems as if the bulls stampeded the technical bears.

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CBOE Volatility Index® (VIX) 16.30 dropped 2.41 points or -12.88% 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, fell even more dramatically, down 3.67 points or-20.75% ending at 14.02. The IVXM and SPX charts follow.

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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.

With 7 trading days until June expiration, the day-weighted premium between June and July allocated 35% to June and 65% to July for a 4.78% premium vs. -2.30% for the week ending May 31, out of the red zone below zero and into the caution zone between zero and 10. While both the Implied Volatility Index Mean, IVXM and the VIX futures premium improved somewhat they are not as yet confirming the reversal and presumed attempt to retest the May 1 high at 2954.13. A failure to improve this week would raise the caution flag again. The chart below tells the story.

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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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