Why The VIX Warrants A Look
The September S&P
futures (SPU and ESU) opened Wednesday’s earnings-filled day with a
minimal gap to the upside that was mostly filled in the opening rotation. There
was an absence of broker activity at the open as locals sold the market down to
the Daily Pivot at 983.50, which it tested twice before breaking on the
customary 3rd try. A couple of sell programs in the 1st hour pressured the
market down to a new low just under 979. Two attempts to get a rally going
failed both times at Daily Pivot resistance, the 2nd time being after a Fed
Governor said the Fed would be ready to cut interest rates below 0% to fight
deflation. I’m not sure how they can cut rates below 0% and that may have been
a misquote by the newswires, but if they’re gonna start paying people to borrow
money, then count me in! The S&P futures bled lower after that and put in the
session low at 977.75. Market players decided not to take a lunch break today
as the futures staged a reversal on better than normal lunchtime volume and
ended up setting the high of the session at 988.75, before settling into a
choppy range the last hour.
The September S&P 500 futures closed the session
with a gain of +0.75, just off the high of the session. The contract posted an
inside day for the 2nd session in a row, as its daily range continues to
contract. Volume was decent but off from Tuesday’s healthy tally. Nothing has
really changed on a daily basis, as the contract is still pinned between its
20-day MA on the upside and its 50-day MA on the downside. However, the VIX
warrants a close look here, as it comes down to test the lower end of its range
going back to May. As you can see on the charts below, the past few times the
VIX has moved down to this area, the S&P futures saw some pressure soon after. I
was mistaken when I said we don’t really have an economic reports until
Friday. Thursday morning, we have the Weekly Jobless Claims with a consensus of
415,000, and an increase over last week. Market players are beginning to lose
patience with this report, which needs to dip below 400,000 before the
unemployment rate will see any relief, and a higher number may give us a gap
down at the open.
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Daily Pivots for 7-24-03
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 1711.46 | 1727.73 | 1736.30 | 1752.57 | 1702.89 | 1686.62 | 1678.05 |
| INDU | 9166.67 | 9231.05 | 9267.87 | 9332.25 | 9129.85 | 9065.47 | 9028.65 |
| NDX | 1261.95 | 1277.01 | 1285.50 | 1300.56 | 1253.46 | 1238.40 | 1229.91 |
| SPX | 986.08 | 992.38 | 996.15 | 1002.45 | 982.31 | 976.01 | 972.24 |
| ESU | 985.42 | 993.08 | 998.67 | 1006.33 | 979.83 | 972.17 | 966.58 |
| SPU | 984.73 | 991.77 | 995.93 | 1002.97 | 980.57 | 973.53 | 969.37 |
| NDU | 1265.00 | 1282.50 | 1292.00 | 1309.50 | 1255.50 | 1238.00 | 1228.50 |
| NQU | 1265.67 | 1283.83 | 1294.67 | 1312.83 | 1254.83 | 1236.67 | 1225.83 |
| BKX | 894.17 | 899.40 | 902.64 | 907.87 | 890.93 | 885.70 | 882.46 |
| SOX | 390.63 | 397.24 | 400.70 | 407.31 | 387.17 | 380.56 | 377.10 |
| QQQ | 31.41 | 31.83 | 32.06 | 32.48 | 31.18 | 30.76 | 30.53 |
| SPY | 98.99 | 99.70 | 100.16 | 100.87 | 98.53 | 97.82 | 97.36 |
| SMH | 32.22 | 32.77 | 33.06 | 33.61 | 31.93 | 31.38 | 31.09 |
Fair Value & Program Levels
Fair Value — (0.92)
Buy Premium — 0.42
Sell Discount — (2.58)
Closing Premium – (1.01)
Please feel free to email me with any questions
you might have, and good luck with your trading on Thursday!