Volatility Bands Adjust To Implied Volatility Changes
From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
The rebalancing into the last 4 days of the month end resulted in a +13.8% gain for the SPX, and +10.5% on the week. The amount of rebalancing needed was similar to 1987 when the SPX advanced about +10.0% over the last 4 days.
The IWM and MDY both gained +20% the last 4 days, and the sector that accelerated the SPX was energy, where the XLE was +25.0%, and the OIH +23.0%. You were also made aware that 10/28 and 10/29 were key time dates.
The SPX and INDU were the only two major indexes that didn’t take out their 10/10/08 intraday lows, but they did it on a closing basis. The SPX made a 839.80 low on 10/10, and then tested that with an 848.92 low close last Monday, followed by an 845.27 low on last Tuesday, which was the retest of the 839.80 low. The SPX remains in a 4 week trading range with the high close at 1003.35 and low close at 848.92 so the October sell off remains a double bottom and possible bear market low until proven otherwise on a technical basis. There is no reason to buy the high end of this range.
The trading was anemic yesterday as the NYSE volume was light at 1.02 bill she, with the volume ratio and breadth neutral at +354. The average implied volatility of the SPX ATM call and put has declined to 48.14 today versus the high during this October meltdown at 76.67, after the 10/28 845.27 low. However, those of you that use my Volatility bands know that being extended only relates to the IV for a specific day, so the probabilities of a successful reversal remain the same regardless of whether the IV is 77 or 48 etc.
Until the election is officially over, and the determination is made whether or not the Socialists gains one party control, with no filibuster Senate, there is no reason to anticipate a market outcome.
Have a good trading day!
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