Today's broad-based rally was fueled in part by the technology sector and financials. By the close of last Friday our models clearly indicated that there were high chances of a "critical volatility pullback" this week, and we posted that on Sunday.
From Monday to Wednesday, the VIX has dropped 10.7%, the VXO 10%, the VXN 13.4% and the QQV 6%; however, the DJIA has shot up 5.45%, the S&P500 5.8% and the NASDAQ 6%. At first glance, these percentages look alright, nothing out of the ordinary, however there was a divergence from about noon today when after an initial volatility selloff at the start of trading, it quickly started to recover; in fact, the VIX rose by more than 3% closing near it's highs and the VXO ended the day down close to 1%. While many people consider a volatility divergence of this type as been bearish, nothing truly bearish in the long term has come out of volatility and the equity indexes both rising. Actually, even though a volatility rise such as today's allows more room for it to fall further, the VIX close we just mentioned could pose a clear bearish sign in the very short-term.
From the E-mini S&P500 side, it could have found some serious resistance at the mid 920's level it stands today so we would welcome some pullback tomorrow.
From Monday to Wednesday, the VIX has dropped 10.7%, the VXO 10%, the VXN 13.4% and the QQV 6%; however, the DJIA has shot up 5.45%, the S&P500 5.8% and the NASDAQ 6%. At first glance, these percentages look alright, nothing out of the ordinary, however there was a divergence from about noon today when after an initial volatility selloff at the start of trading, it quickly started to recover; in fact, the VIX rose by more than 3% closing near it's highs and the VXO ended the day down close to 1%. While many people consider a volatility divergence of this type as been bearish, nothing truly bearish in the long term has come out of volatility and the equity indexes both rising. Actually, even though a volatility rise such as today's allows more room for it to fall further, the VIX close we just mentioned could pose a clear bearish sign in the very short-term.
From the E-mini S&P500 side, it could have found some serious resistance at the mid 920's level it stands today so we would welcome some pullback tomorrow.
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