S&P500, Dow, Russel2000 etc.

[Condors]

Bulls or Bears for the rest of October. I've called a medium term top on the indexes on my blog on Sept 30 @  http://sigmaoptions.blogspot.com, though half expecting that call to be trashed by the bulls. 

Yearly highs look about to be tested... but watching for a possible double top there. As I said on my blog, don't have the farm riding on this, just a bit of soothsaying for fun.

In the absence of anything notable to report re my current obsession with gold, I'll have a look today at my guru call from Sept 30. (N.B. all the guru stuff is tongue in cheek and a bit of self derogation.) as you will recall I Went Out On A Limb and called a medium term top on the S&P500.

Well the bulls are putting that call under some serious pressure after some smugness inducing down days immediately succeeding my call. As of now, the yearly highs still have not been taken out, so I haven't cancelled my guru robe order just yet. I'm speculating on a double top and that divergence (for whatever that is worth) in the MACD does its freakin' job of psyching traders into a sell-off.



The 20day MA of the put call ratio I keep posting in the hope someone takes notice, is still highlighting extreme complacency.



So I'm sticking to my guns for now. Still no money on the outcome here, just managing a delta neutral trade. That means that don't want be toooooo right, sideways consolidation would be good.

[Condors]

(Also posted at http://sigmaoptions.blogspot.com )

So the S&P500 just about touches the high of the year from last month and slowly backs away. At this point I'm not going to remind you of my top call from September 30, just in case it blows straight through to new highs and trashes my reputation as market soothsayer and guru. LOL

The point of focus for me is now VIX. The finer points are expertly covered by Adam Warner and Bill Luby (and others), but I'm looking at the 23% level and wondering whether that is the base level for right now.



Which begs the question. Is the VIX predictive or reactive... or both. I lean on the side of reactive, but the mean reverting characteristics are well known, hence indicating as least some predictive implications.

The next question is "can technical analysis be used on the VIX?"

I say why not?

I say you can, so long as you're not trying to make predictive assumptions with pretty coloured lines and purely mathematical constructs. To me TA is about create boundaries of proof and disproof. This fits in with VIX analysis for me.

IOW a break below 23% disproves my basing hypothesis. A bounce above supports it.

Adam and a few others use the "10% above or below the 10dma" method to spot potential points of over/undersoldedness (to invent a new word). I'm far too lazy for that so I've tacked a 3,10,16 MACD on the bottom to essentially arrive at similar conclusions. It works adequately for that purpose.

Do we see an oversold VIX? Yes. Does it mean anything? Who the hell knows. But there is that divergence on the bog standard MACD.

The upshot is that I'm trying to convince myself of the chance of a double top right here.

Yes, I'm fighting for my guru call's survival...

...somehow I fear it may be in vain. This market just wants to go up

[Condors]

As my double top hypothesis slowly disappears beneath the waves I am now looking for the next point of resistance.

The monthly pivots (same as daily floor pivots, but on a monthly time scale) have been supplying useful points of interest as resistance, even if the resistance has been a pause or shallow retracement, so that where I'm focusing next.

October R1 is ~1095 so if we get a pause after this breakout, that's where I'll be looking for it.

See chart below.

Pleas note that this is amusement value only. I trade delta neutral on the indexes so no real effect on how I'm trading.

[Condors]

With the close of the Spoooz yesterday at ~1093 we are close enough to the 1st monthly resistance pivot to start looking for signs of a pause.

It's still early in the session, but we are off a couple of points, but at this stage it's looking like it may indeed be resistance here. Plenty of water to go under the bridge yet before calling it though/

[Grinder]

Resistance yes and IV forming a support that is showing the right signs ... hmm.. dare I say a DD or calander could be in order.

[Condors]

Resistance yes and IV forming a support that is showing the right signs ... hmm.. dare I say a DD or calander could be in order.

Heya Grinder,

The long vega idea is looking pretty good right about now. 

The monthly pivots working again.

[Condors]

Soothguessing for the coming week.

As we head into the new week, once again I pull out my crystal ball (which I'm thinking of sending back for a refund) and look for signs of a top in this market. Ahhhh life is so tough for bearish prognosticators.  Once again I'm going to have a look at those leading indicators than markets are so adept at ignoring

Firstly, VIX. As I said in a previous post, I have no challenge with technical analysis on the VIX, so long as it is about creating boundaries of proof and disproof. My thesis was that VIX had bottomed for now at ~23%. This has now been disproved with Friday's close at around 21.4%. VIX watchers are postulating that it is now oversold on whatever their favourite basis is for such opinions. I'm inclined to agree.

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Even if we get a mean reverting bounce in the VIX via a retracement in the Spooz, you'd have to think there is generally lower levels in the VIX's cards as the market grinds upwards.

My old favourite, the 20dma of the put/call ratio is still dragging its ass along some of the lowest levels of the past three years. Clicking down a couple of gears to the 5dma of the put/cat ratio and we are at new lows as of Friday's close.

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Nobody wants to hedge their portfolio any more.

This gives us a picture of complacency and this is generally regarded as a contrarian signal. It should be noted however, that complacency can last for some time

The case for resistance can be made by the monthly pivots. These have shown areas of interest in the past few months and as we are at R1, I'm looking for some genuine signs of resistance. We've had a bit of a pause there during the latter part of last week, but I've yet to be convinced we don't grind higher. Markets have opened up a tick or two as I write, so waiting to see definitive signs of direction for this week.

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Good luck

[Condors]

The monthly pivots (same as daily floor pivots, but on a monthly time scale) have been supplying useful points of interest as resistance, even if the resistance has been a pause or shallow retracement, so that where I'm focusing next.

October R1 is ~1095 so if we get a pause after this breakout, that's where I'll be looking for it.

Pleas note that this is amusement value only. I trade delta neutral on the indexes so no real effect on how I'm trading.

And from Oct 19  - The case for resistance can be made by the monthly pivots. These have shown areas of interest in the past few months and as we are at R1, I'm looking for some genuine signs of resistance.

Sure enough, the monthly resistance pivots (in this instance R1) have provided useful points of reference as resistance in this uptrending market.

How to actually play it is anyone's guess depending on what they're try to achieve. But certainly not something to be ignored if one has any illusions of being a soothguesser. 

In the interests of balance and avoiding self delusion, it's worth noting that the support pivots haven't been in play at all.

As ever - For amusement value only.

[Condors]

Do I detect just a modicum of concern of this market via the VIX?

Yes we are off a few points today and this invariably causes at least a bit of a rally in the VIX. Nothing startling there. But watching VIX over the last few days I was beginning to wonder whether they were going to plough volatilities into the mid teens, come what may.

We all parrot the standing wisdom that VIX is mean reverting and I certainly think that's true. The nature of volatility and how it is measured makes it deterministically so... with an infuriatingly chaotic dualism so we can never really time volatility except by accident.

('cept when I nail it right on the day. That is unquestionably skill    )

What is this mean VIX must revert to anyway? Having not really paid attention during may statistics classes, I never realized there was more than what type of mean. Sparing  me the embarrassment of intellectual incapability of calculating other sorts of mean, I am quite sure it is the arithmetic mean of some defined lookback period, AKA a simple moving average.

Easy enough to work out, but even that simple task has been wrested from us via software.

But it begs the question, what lookback period should be used to determine the mean? In other words, what length moving average?

There is a school of thought that uses the 10DMA. Fair enough... whatever. But the lookback period used can deliver vastly different "means". Also the mean is a moving target. The mean today scarcely resembles the mean 8 months ago. By the ten day measure, VIX is probably already overbought (whatever that means). By other measures, there is still some reverting to do.

Whatever the case, the VIX mean is heading lower, unless Roubini's 2nd crash scenario unfolds; and don't see that happening in the near future.

What I'm basically saying in an extremely convoluted way is - VIX has finally bounced, but I have no idea where it, and the market, is going next. But my guess is some degree of retracement.

[Condors]

Resistance yes and IV forming a support that is showing the right signs ... hmm.. dare I say a DD or calander could be in order.

(Presuming you went long vega)

How smug are you feeling mate? 

[Grinder]

Very but I didn't go with size so they became more of a convenient form of additionally protection to keep my condors in tact.

[Condors]

Very but I didn't go with size so they became more of a convenient form of additionally protection to keep my condors in tact.

Even smugger now?  

[Grinder]

So long as it does'nt get over exicted.

[Condors]

As October trading is over it's time to look forward to the next month with reference to our new monthly pivots now set in stone, with the last trading day in October adding a fair bit of interest to the equation.

The monthly pivots have been very influential on the resistance side of the equation, but with scarcely any relevance at all on the support side. This is fairly expected in a stong uptrend.

click to enlarge

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First line of resistance is 1085 and my guess is that that would well and truly contain this market based on the last few day's action.

Maybe we see the support pivots coming into play... maybe. First support at 1003. Anyway, they're my points of reference to watch out for.

The 20dma of the equity only put/call ratio is still dragging it's ass along the lowest levels of the last 3 years and that still says to me that the market is toppy.

<img src="http://http://i33.tinypic.com/95u70z.gif" >

But those low readings can and do drag on.

VIX is the interesting one having hit 30 on Friday. VIX gave a pretty reliable short term buy signal that manifested itself on Thursday of last week, but that all turned to crap on the Friday.

All in all a pretty interesting week and month ahead. No soothsaying from me at this point apart fro not expecting new yearly highs in the month of November.

[Fox]

I have not known about pivot points before until I browsed this thread. After a bit of googling and reading your latest post, it (PP) appears to predict the resistance level remarkably accurately.

I know that you trade the index options delta neutral, but does the S1 and R1 play some role in influencing your selection of sold strikes or goal posts? Or even your adjustment decisions?

[Condors]

I have not known about pivot points before until I browsed this thread. After a bit of googling and reading your latest post, it (PP) appears to predict the resistance level remarkably accurately.

I know that you trade the index options delta neutral, but does the S1 and R1 play some role in influencing your selection of sold strikes or goal posts? Or even your adjustment decisions?

Fox

I view them a bit like Elliott Wave. What is clear in hindsite is not so clear on the hard right edge of the chart.

I do use them in my trading decisions, but they are just a part of what I consider.

But probably overall more useful for following the market in real time, rather than predicting what the market will do... points of reference if you like.

Like all of these things, one has to look out for confirmation bias when looking back over a chart. But I do find they help in my decision making.

[Fox]

Like all of these things, one has to look out for confirmation bias when looking back over a chart. But I do find they help in my decision making.

One use I can think of for decision making would be this scenario:

My right hand strike or goal post is being severely threatened and adjusting to be delta neutral will lock in a big loss. I have to decide between locking in a big loss or chance that the spot will move back down again.

If I see that the resistance R1 is containing the spot quite well in recent and previous months (I presume this is what you mean by "confirmation bias"), I could take a bet that the spot will stay at R1 or move back down.

I faced a similar situation recently. My fly with an equity option was hit with a 3 sigma event. My short term decision was to wait for a spot price retracement or take in a hefty loss and adjust. I took the hefty loss. Now the price has retraced and I'm taking a second hefty loss. Pivot point charts could have helped me then.

My long term decision is to stop playing with equity options and only focus on index options only for flies.  

[Condors]

So the SP500 has touched our 1^st resistance level at what is basically racing pace and my hypothesis that this level might contain it for the month looks to be in trouble at the moment.

To me, pivot levels are about observing price behaviour at these levels to see if they mean anything. Just because it hits a level doesn't make it a sell. If it smashes through R1, I'll be looking at the Oct highs and then R2 @1133 for signs of resistance...

...for whatever that is worth. 

If I see that the resistance R1 is containing the spot quite well in recent and previous months (I presume this is what you mean by "confirmation bias"), I could take a bet that the spot will stay at R1 or move back down.

Confirmation bias is "seeing" only those instances that support your hypothesis and ignoring those instances that don't. It's very common when looking at charts... in fact very hard NOT to do. Being cognizant that our brain does this is, is important so we don't go and make dumb decisions.

I make enough dumb decisions as it is. 

[Condors]

To me, pivot levels are about observing price behaviour at these levels to see if they mean anything. Just because it hits a level doesn't make it a sell. If it smashes through R1, I'll be looking at the Oct highs and then R2 @1133 for signs of resistance...

I was thinking that the October high was going to stop this market, but R1 basically became support. We all know the result this far, today has blasted off to new yearly highs.

I think R2 @ 1133 will be like a magnet for this market now in November.

[Grinder]

Think you might be right but hope your not. The last thing I want is another quick one way market like we saw a few months back.