Technical Damage

As they say in the trade, Last Tuesday's decline did some real technical damage. Just as it looked like the S&P 500 Index, would soon activate a Double Bottom pattern it reversed and crashed. There is more below in the market review including the worrisome 10-2 Treasury yield spread followed an Enterprise Products Partners LP (EPD) collar and another SPDR S&P 500 ETF (SPY) put spread idea.

S&P 500 Index (SPX ) 2633.08 got whacked for 127.09 points or -4.60% last week with the largest and more important decline of 90.31 points occurring last Tuesday, December 4, once again increasing the probability of retesting the October 29 low at 2603.54.

CBOE Volatility Index® (VIX) 23.23 advanced 5.16 points or + 28.56% 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, gained 4.52 points or +28.16% last week ending at 20.57. The one year volatility and SPX line charts follow.


Now back near the top of the recent range. While any further advance could make a good decision point to sell or hedge it could also indicate an SPX capitulation bottom should it make a key reversal by trading to a new low but closing higher on the day; although unlikely before the end of the year.

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 December expiration, the day-weighted premium between December and January allocated 35% to December and 65% to January for a -10.06% premium vs. -1.04% last week ending November 30. Still very much in the caution area, well below the bottom of the green zone between 10% to 20%.

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

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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 ...

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