With the popularity of the VIX and VIX futures being overlyused as a volatility hedge, I’ve been thinking about the signals it might give for medium term entry or exit points. If you chart the VIX and overlay Bollinger Bands (20,2,SMA) and look at the SPX, you’ll notice something interesting. Remember the VIX is forward-looking. The other indicators are price biased, and historical.
When the VIX breaks over the upper Bollinger band, you’ll see a low point directional change in the SPX. This isn’t a completely new idea, I was at a seminar recently which looked at combining this with Chandelier as a trading strategy. I’m going to just stick with the Bollinger Bands, the VIX and ATR. That’s where I see the most interesting information.
I mention ATR (Average True Range) because the 1 day ATR helps confirm long entry points.
Everything is in the chart below. The long signals look better than the short signals.
Trying to get the month off to a good start today, and I’m mostly on ‘pause’.
We’re sitting at the bottom end of the range on the SPY, the biggest risk for my short positions would be a technical bounce here.
The other number which worries me today is 1.30 and the EURUSD 2% drop. It’s sitting 1.325 which feels very oversold. I was expecting 1.30 ish, but now that we’re here we should start to see a bounce. Will we?? The sentiment is still negative out of Europe and the reason this bothers me is that Europe is just a distraction! The strength in the dollar makes even less sense to me than gold at $1900. The markets have shifted from a flight to gold to a flight to the dollar. Frankly, I’d rather be in gold.
There are two unusual names which I’m starting to watch JC Penny, JCP, and Accenture Ltd., ACN. JC Penny Company Inc. is holding up better than I would expect, and Accenture has earning scheduled for October 12th.
Accenture caught my attention because there’s huge open interest on the October 44 puts. Accenture is trading at 52.75. I can only imagine someone’s expecting a very weak earnings release next week. The put/call interest on ACN is 0.91 so the sentiment is fairly bearish. This is something to keep an eye on as we run into earnings next week. If earnings and their outlook are weak this would be another bad sign for the SPX.