SPX on Support
Actually $SPX hit two levels of support which happen to coincide–the 200D and a weekly trend line which creates its lower channel. This combo is even more, well, supportive. Sentiment was also at a low so it doesn’t hurt that there was Clinton news last night; the market wants Clinton to win desperately. Quants loved referencing the historically rare 9 days of decline and with that VIX was an outlier waiting to revert! Oh, and the one I like call “shake-n-bake’–that essential pivot, in this case $2120, which breaks down drawing in all kinds of shorts, and then,just for giggles, the market reverses sharply to shake them out. Classic. Whatever the reason or reasons, stars aligned for this one. Lucky for us the narrative (news) matched the bounce (technical).
VIX Futures Premium Oversold
Published by iVolatility, this gem of an indicator performs much like an oscillator to help identify overbought/oversold conditions. The premium measures the amount the futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration. Normal term structures during uptrends are 10% to 20% and premiums less than 10% suggest caution, but negative premiums indicate oversold conditions! Translation: when VIX is higher than its future months, reversals are more likely to occur. And this time it was even lower than Brexit.
XVG on Weekly Support
Intermarket analysis can help tune out the noise of day to day. In this case, the weekly chart of the weighted average of all stocks, versus heavily weighted indices, is another way to assess price action of the stock market. I had posted this chart Aug 13 to highlight the overbought condition of XVG and the liklihood we would head lower if for no other reason that to fill that gap! (Sorry it’s not more complicated than that.)
Topping is a process. Bottoms are an event. We had our pre-event event. Now we get to see what the market is really made of.
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Thanks for reading and Happy Trading,