What The VIX May Be Telling You
The September S&P
futures (SPU and ESU) opened Monday’s session with a +3.00 point gap
to the upside on follow-through strength from Friday’s session. The size of the
gap gave a good probability of a “gap and trap” open, but after an initial push,
the contract found support at Friday’s high at 992.50. The TRIN also took a
bullish dive below 1.0 and stayed there throughout the session. Merrill Lynch
was a good buyer on the dips and back up again, creating strong enough buying
pressure for the contract to blow through stops at 995.50 to a new high. The
futures settled into a tight lunchtime lull range, oscillating back and forth
around R2 at 999 and eyeing the magic 1,000 level. Two attempts to break and
hold that level didn’t have enough muscle behind them, and the futures settled
right at R2.
The September S&P 500 futures closed Monday’s
session with a gain of +8.25 points, and finished in the top 1/3 of its daily
range. Volume in the September ES was estimated at 345,000 contracts, which was
ahead of Friday’s pace but still below average. On a daily basis, the contract
closed above the downtrend line formed by the 7/14 and 7/31 highs, but still
needs to muster up the strength to close above 1,004 to put a sock in the mouths
of the near-term bears. The Dow hit a new 14-month high and follow-through on
the SPX is even more important now with divergence forming between the 2
indexes. The VIX posted its lowest close in over 16 months, going back to 3/02,
and the charts below show where the SPX went the last time it diverged from the
Dow and the VIX was down here.Â
I know, I know, “It’s different this time!”
On Tuesday morning, we have the Housing Starts
and Building Permits reports at 8:30 am ET, and then followed by Friday’s
postponed Michigan Consumer Sentiment Index at 9:45 am ET, which is expected to
come in at 91.5.
Please feel free to email me with any questions
you might have, and good luck with your trading on Tuesday!
P.S. Learn to trade the E-minis in my new
interactive CD-ROM training module! Click
here for details.