New Rising Wedge

Although the S&P 500 Index rebound from the December 26 low has been impressive, advancing above the first resistance zone between 2550 and 2600, it could soon run out of gas, since from a classical barchart perspective, it appears to be forming a bearish Rising Wedge. A chart with details is included in our market review along with the regular weekly line-up.

S&P 500 Index (SPX) 2670.71 gained 74.45 points or +2.87 % last week, the second week of +2% gains continuing well beyond the first expected resistance zone. Closing back above the 50-day Moving Average at 2625.45 it's approaching the active downward sloping trendline from the October 3 high at 2939.80 and more resistance.

CBOE Volatility Index® (VIX) 17.80 declined .39 points or -2.14% 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 1.54 points or -9.88% ending at 14.05, near the bottom of the recent range shown in the updated one-year volatility chart with SPX below.

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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 17 trading days until February expiration, the day-weighted premium between February and March allocated 85% to February and 15% to March for a 2.82% premium vs. 6.71% the prior week ending January 11. Still, below the bottom of the green zone between 10% to 20%, it's not reflecting the recent strength of the advancing SPX.

The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. Previously, declines below 10 and advances above 30 were unstable. If there was only one indicator available, this one would be a top contender.

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For daily updates, follow our end-of-day volume weighted premium version located about half-way down the home page in the Options Data Analysis section on our website.

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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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