I recorded a video today covering an unusual development in the options markets. Conditions have arisen that may be signaling a neartermed market correction. I would strongly encourage readers of this blog to watch the video.
Here is the link: Volatility Alert Video
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9 Comments
Good morning Keith, very interesting. thanks for taking the time to inform the retailer. my question would be are the option players just front running the historical seasonality picture, therefore creating the volatility they are hedging against?
Carey
PS : notice you like to stand during videos, the cyclist in you, are you a climber?. lol
Great question Carey- and you are correct in that there is seasonality to the VIX in September- and its rising- but against a backdrop of low volatility in the actual stock market. As noted in the study by sentimentrader– they tend to be like two people holding hands and walking…they move together. Normally the VIX is low in early September and rises into October. And it has— it went from 16 to 20 in the first week alone. So its moving ahead–despite the fact that until the last few days actual vol was non existent. That’s the puzzle. Yes, they are indeed looking towards volatility, but they (options writers) are not normally quite so far ahead. Perhaps some big players are seeing something….we shall see.
Oh-yes, I stand for the videos most of the time as I like to move my hands around and it just seems to feel better to record standing up -re the bike–I tend to do long fast rides with friends –and when I race (not much in past 2 years) I do time trials…see this blog:
https://www.valuetrend.ca/cry-in-the-dojo-laugh-in-the-battlefield/
Can you comment on gold in a higher volatility period. It is in a tight range the last month and down today. Should it not be reflecting the threat of volatility? Does it lead, follow or ignore?
Gold doesn’t have a specific relationship to stock volatility. My longer termed prognosis has been that its a non correlated asset to the stock market meaning it is a good diversification but not a hedge. This blog proves that point: https://www.valuetrend.ca/what-to-hold-when-stocks-fall/
Its a great USD hedge, though. See this blog: https://www.valuetrend.ca/usd-outlook-and-some-potential-hedges/
Hi Keith, to add a of couple observations, the market could be waiting on the next catalyst, US Fed meeting Sept. 21-22.
Also, several indexes and sectors are sitting at key levels right now, and if those levels can break, it could lead to the mild correction that you are describing. Look at the daily candlestick charts of the S&P, the Dow, IYT, XLF, KRE, IWM and MDY (there could be others to add to the list). If the S&P, the Dow and the Transports can break current levels, with implied volatility also trying to break out to the upside, this could lead to a mild correction.
But again, all of this could hinge on what the US Fed says this week.
Agreed
Hi Keith,
It would appear that the market is correcting like you said it would!
Are you still thinking that it will fall to 4200 or 3800 on the S&P 500? What do your charts suggest these days?
Thanks
I will be blogging on that shortly
Thanks!