The picture turned dreary for the bulls last week as the information technology and energy sectors pulled the S&P 500 Index down again. From a technical analysis perspective, an appraisal of six significant technical developments that have occurred in the last six weeks follow our regular market review along with a hedge idea to consider using SPDR S&P 500 ETF (SPY).
S&P 500 Index (SPX) 2632.56 dropped 103.71 points or -3.79% last week increasing the probability of testing the October 29 low at 2603.54 this week, as a potential Head & Shoulders Bottom pattern faded away. Details follow in Technical Score section below.
CBOE Volatility Index® (VIX) 21.52 jumped up 3.38 points or +18.63% 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 3.07 points or +19.39% last week ending at 18.90. The one-year volatility and SPX line charts follow.
Compared to the spike up in February, the current range for the IVXM between 12.75 and about 22, will likely be broken if the SPX continue lowers. However, a close back below 12.75 would suggest support and a possible Double Bottom pattern.
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 December expiration, the day-weighted premium between December and January allocated 85% to December and 15% to January for a -4.93% premium vs. 1.14% last week ending November 16. Now 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.
