Archive for April, 2010

Is The CBOE Volatility Index (VIX) Nearing A Bottom?

Posted in CBOE Volatility Index (VIX) on April 26th, 2010 by admin – Be the first to comment

Jim Donnelly, Olson Global Markets

Having reached levels not seen since July 2007, the CBOE Volatility Index (or VIX) appears to be in the process of forming a bottom. For starters, deeply oversold conditions are present on weekly charts. In addition, the VIX is nearing a test of key “cross” trend line support now located at the 15 level. More telling, however, is developing divergence being formed on weekly MACD studies. Such a divergence, if triggered, would suggest that a trend toward higher levels of volatility could follow.

Since there is a well-developed inverse relationship between equity prices and the CBOE Volatility Index, a rise in the VIX would in all likelihood be accompanied by a corresponding decline in stock prices. There is no doubt that earnings on the S&P 500 Index have continued to show improvement. Economic conditions have also shown a series of better-than-expected results. That said, equity prices have rebounded sharply over the past 13 months without much interruption and may have already discounted these events. The key to whether an “interruption”, pause or correction in equity prices actually occurs, however, will likely be signaled by a reversal to the upside in the VIX.


The S&P 500 Index (SPX) Apparently Finds Resistance

Posted in The S&P 500 Index (SPX) on April 19th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

The combination of overbought conditions, “channel top” resistance, weak implied volatility levels and an unexpected civil suit launched against Goldman Sachs teamed up to send the S&P 500 Index (SPX) solidly lower on Friday. An unexpected drop in April’s consumer confidence index, a second straight unexpected rise in weekly jobless claims along with waning bullish momentum heading into earnings season added to the mix.

Although there is a growing expectation that the economy is generally improving, worries over sovereign and municipal debt, uneven fundamental data along with political polarization could act as a drag on equity prices following a year long recovery in the S&P 500 Index.

The real surprise would be if a solid break above key “channel top” resistance (now at the 1,214 level) occurred in the face of all of this. A round of “short covering” along with increased pressure to put unemployed cash positions to work would catch a number of investors off sides under this scenario.

For now, however, the likelihood is that the market has found an intermediate-term top with a distribution phase likely to follow.