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Wednesday, January 17, 2018

Daily update 1/17 SPY option data

The bulls fight back as SPX closes at a new high.

The panic buying continues.  Today's volume was nearly as high as yesterday.  Breadth was +62%.  New highs dropped way down to 176.  New lows were stable at 55.  Once again elevated for a new high close.

The futures popped back out of the channel today.  Maintaining the uptrend for the moment.

The green count turned up nicely.  It remains above 50 and below overbought levels.

Volatility is definitely increasing so far this year.  Last year the intraday range shrunk up to almost nothing as SPX neared new highs.  This year the fear of missing out (FOMO) is higher then the fear of buying the top.  The increasing volatility can be the sign of a top.  However, that top could still be well into the future.  The volatility started picking up in 1995, but as you know the real top was not until 2000.  That was a very unusual moment in market history.  I don't know if we can count on something like that again or not.  Current valuation levels are considerably higher then 1995.  FOMO usually means we are in the final blow off top.  That stage can also last a while.  The bulls gave a good account of themselves today, but I am not entirely convinced we won't start a pullback from around this 2800 level.  Closing below yesterday's low (2768) could indicate the long awaited pullback is starting.  The increase in volatility this year should indicate pullbacks will be larger then they were last year (that assumes we actually have pullbacks). 

We are just a couple of days away from the longest period in history without a 5% pullback.  I would not object to that streak ending soon.  A little volatility for traders would be nice.  I have no idea what happens when it does end though.  We have had a record 14 months where the total return of SPX was positive.  In those 14 months we have traveled quite a long way.  I have to wonder if there won't be some pent up selling released at some point.  At least that seems logical in my mind. 

I seem to be having trouble remembering to show this chart.

I think this month was very interesting.  We had strikes with a lot of calls at 270 and 275.  On 1/3 SPY pushed up slightly through 270.  Over the next four days SPY raced up to 275 where it briefly paused for two days.  On 1/11 it pushed through 275 and raced higher to 280.  The acceleration might have been caused by delta hedging.  There is relatively few calls from here on up.  It would appear there is no fuel for further acceleration left.  It will be interesting to see where we end up at expiration.


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