Once again the time has come to consider hedging long positions. Based upon option and futures indicators this week’s action was slightly less bearish than the week ending 8-11 as if some pressure had been released from the steam boiler perhaps related to options expiration. There is more below including a SPDR S&P 500 ETF (SPY), hedge idea and another Commitment of Traders update for crude oil.
S&P 500 Index (SPX) 2425.55 dropped 15.77 points or -.65% for the week including 38.10 points Thursday closing under both the upward sloping trendline, USTL and the 50-day moving average at 2449.89. Interestingly Thursday’s 1.54% decline was the second Thursday to decline more than 1%. Now a test of support at 2400 seems very likely.
CBOE Volatility Index® (VIX) 14.26 declined 1.25 points or -8.06% for the week while the comparable IVolatility Implied Volatility Index mean, IVXM at 10.96 only declined .18 or -1.62%.
VIX Futures Premium
The chart below shows as our calculation of Larry McMillan’s day-weighted average between the first and second-month futures contracts.
5.18% up from -1.39 week ending 8-11-17
With 22 trading days until the September expiration, the day-weighted premium between September and October allocated 88% to September and 12% to October for a slightly positive 5.18% as the VIX remains at a higher level. Although the VIX futures were higher Friday the curve is almost flat out to January. As the VIX declines look for the premium to return to the more bullish 10% – 20% range.
The premium measures the amount that futures currently trade above or below the cash VIX, (contango or backwardation) until front month future converges with the VIX at expiration.
Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that factors out the number of issues traded, and reported by McClellan Financial Publications, declined another 218.45 points in addition to the 251.61 point decline week ending 8-11 and now approaching the March low near 222.