Log In    |    Join for FREE
DaytradingBias on Facebook DaytradingBias on Pinterest DaytradingBias on Google+ Follow DaytradingBias on Twitter Subscribe DaytradingBias News Feed We accept Bitcoin here

Archive for S&P 500

Feb
11

WTF Chart of the Day: What Can We Learn From Y2K

Posted by: Lawrence Chan | Comments (2)

I posted the Y2K analog back in January and the striking resemblance keeps giving.

Let’s take a look at an update of this comparison of year 2000 and what happened so far this year.

No comment necessary.

Year 2000:

image

Today Feb 11, 2014:

image

Share
Categories : Articles, Blog
Comments (2)
Feb
08

S&P 500 Feb 10 to Feb 14 Outlook

Posted by: News Robot | Comments (0)

Lawrence’s Comment

Recap
ES broke Y-1 from its ledge gave us Y-3 target. Tagged Y-3 and holding since. Double bottom at Y-3 sent Es back up to above Y-1. That in turn triggered a short squeeze / stop run back up to Y+1. Closed the week near Y+1 and week high.

Outlook
Not the first time NFP week Friday simply running higher with bad news. It is not the news that matters. It is how one sided the bets were before the Friday number that shaped the outcome.

Wide range reversal is not bullish or bearish. It is a consolidation pattern.

That puts ES at risk of another wild drop back down to Y-1 down to Y-2 once B+1 is rejected.

Such volatility favours intraday trading over swing trading because the risk reward on higher timeframes are not going to be as good as the intraday ones.

Share
Categories : Daily Commentary
Comments (0)
Feb
01

S&P 500 Feb 03 to Feb 07 Outlook

Posted by: News Robot | Comments (0)

Lawrence’s Comment

Recap
Consolidation week at 50% range. 1780 magic #. Due to overnight news shock all week, we observed surprise breakout plays almost everyday last week. Yet, S&P was still bounded in tight range. Closed the week below Y-1 and midpoint.

Outlook
Daily ledge in place. It is not necessary to go lower at once should more weekly players jumping on board to BTFD.

On intraday basis, sudden gap above B+1 will lead to a run to B+2. Otherwise, B+1 should cap this down with new low likely.

Share
Categories : Daily Commentary
Comments (0)
Jan
26

Seasonal: S&P 500 In March

Posted by: Lawrence Chan | Comments (0)

Emini S&P Seasonal Chart using data from 1993 to 2012.


Part of our premium service, login now or upgrade your membership to view this report

Share
Categories : Articles
Comments (0)
Jan
25

S&P 500 Jan 27 to Jan 31 Outlook

Posted by: News Robot | Comments (0)

Lawrence’s Comment

Recap
Opened near Y+1 and stalled. Y-0 found support, retested original resistance mentioned last week. Breached Y-0 and slided down to Y-1 then Y-2. Closed the week below Y-2 and at week low.

Outlook
First expansion move out of the compression range between 1820 to 1840. Such expansion move seldom ends immediately.

New low expected early in the week. Depending on how far ES bounces back up from the initial low by end of the week, we will find out if another leg lower is in store.

Share
Categories : Daily Commentary
Comments (0)
Jan
24

WTF Chart of the Day: Y2K Deja vu Played Out

Posted by: Lawrence Chan | Comments (6)

What happened 14 years ago recurred – Deja vu!

First one from year 2000.

image

Now what happened today.

image

Even the magnitude matches based on the respective VIX levels.

Learn to read your charts properly.

You will be rewarded.

Share
Categories : Articles, Blog
Comments (6)
Jan
18

S&P 500 Jan 20 to Jan 24 Outlook

Posted by: News Robot | Comments (0)

Lawrence’s Comment

Recap
Sold off on comments from Fed and then recovered back to crime scene. Gap up and took out Y+1. When stop run actions ended ES dropped back down to below Y+1 and opened the door to week mid. Dropped back down to almost week mid on Friday. Closed the week above Y-0 and midpoint.

Outlook
Outside week but closed near midpoint. Y-0 and B-0 very close to each other. All points to indecision as oppose to a strong directional suggestion. Need ES to find support at B-0 for a retest of at least Y+1.

A slide below B-0 can easily induce a drop to Y-1.

Not going to be an easy week to trade.

Share
Categories : Daily Commentary
Comments (0)
Jan
17

WTF Chart of the Day: 2014 Y2K Deja vu

Posted by: Lawrence Chan | Comments (0)

30-minute S&P 500 charts presented without comment.

Year 2000 Jan chart.

image

Year 2014 so far.

image

Coincidence?

Share
Categories : Articles, Blog
Comments (0)
Jan
15

Market Breadth Primer: The VIX Phenomenon

Posted by: Lawrence Chan | Comments (8)

Old Greek InscriptionMajority of option traders who understand options tend to focus on the mathematics of VIX while the chart traders who trade S&P 500 Index futures tend to focus on the chart patterns and confirmation signals from VIX.

Who is right?

Who understand VIX better?

Here is a short piece on the VIX Phenomenon that no one in the financial blog sphere ever talked about. Maybe learning something about VIX from a completely different perspective all together can help us answer the questions above.

CBOE Volatility Index

VIX is the symbol for CBOE Volatility Index. I am not going to waste time here discussing what it is. You can find out more about the index at wikipedia. Links are provided below for further reading.

The one single most important key about the VIX value itself is that it is an annualized rate of the expected variance of the S&P 500 based on the nearest traded strikes of the SPX options.

Thus the value of VIX cannot be directly translated into the expected volatility until you plug the value into a formula to get the estimated standard deviation of the period you are interested in. The calculation method is quite simple. There is an example in wikipedia illustrating the method so I am not going to repeat that here.

Let’s dive in to the heart of the issue.

The VIX Phenomenon

Following is a table of VIX levels with the corresponding implied 30 days percentage change and the translated absolute value at 100 points interval based on S&P 500 price levels. If you do not understand what I mean in the first sentence, it is okay. Let’s look at the table first and I will explain right after.

image

When VIX is at 13, the 30 days estimated volatility is 3.75% and that translate into 45 S&P points if S&P is trading at 1200. If S&P is trading around 1800, that translates into 67.55 points. These absolute values carry a lot of weight. They are there telling you that if S&P is trading at 1200 with VIX at 13, there is a 65% chance S&P is going to stay within +/- 45 points from 1200. If you trade options, you must know this to formulate your strategy properly.

So many numbers in a huge table. What’s the point?

I have computed the average value of VIX since 1997 at each 100 point interval on the S&P 500. It is the 2nd line from the top of the table. For example, when S&P was trading at 1200 +/- 50 points, the average value of VIX was 20.4 since 1997.

Looking at the numbers themselves it is not easy to draw a connection. So, I have highlighted these average VIX levels in yellow corresponding to the respective S&P price levels. Now, they are very interesting.

The higher volatility readings at 1200 to 1500 was mainly due to the steep decline and spike values in VIX during the last 2 market crashes. But that does not change the fact that there is a general trend of decline in VIX level relative to the increase in S&P 500 price levels.

Why is it the case?

Keep It Simple Stupid

The clue is the near constant range of the absolute values translated from these standard deviations.

From the 1600 to 1800 column, the absolute value is within a constant range at 65 to 75 S&P 500 points.

If the extreme spikes (value greater than 40) are removed from the VIX historical readings, this constant range will be the same for the 1300 to 1500 columns too.

Traders who trade S&P 500 options, be that used for hedging or pure speculation, do not really depend their final trading decisions on their option models. When things boil down to money making, these traders are really looking for the absolute potential in their trades and adjust the risk they are going to take accordingly. After all, profit and losses are measured in S&P points, not the Greeks in the option price models.

In short, options on index are traded off the absolute value of the indices because human do not trade with unlimited capital and fictitious percentage measures. Humans behave the same way no matter S&P trading at 1200 or 1800. This phenomenon also indirectly shows that majority of volatility models failed to capture the essence of human trading behaviour.

Summary

It is now easy to answer the questions I raised in the beginning of this article.

The option traders more talented in math are blinded by their superior math skills and ignored the fundamental principle of any market. That is, traders are bounded by their profit making objectives and risk profiles. Thus, no matter what they think, VIX has the characteristics of a tradable instrument and it shows in its charts.

The traders who are good at chart reading can often pick up the interesting behaviour of VIX like how it loves to hold a particular level for a long period of time. That is excellent detective work but the lack of understanding the nature of VIX makes it difficult to figure out the reasons behind such phenomenon. In turn, the inference from the observations may not be as accurate as one likes it to be.

Both sides have something to learn from each other.

 

Resources

CBOE Volatility Index (VIX) at Wikipedia

Bankable ETF Strategy: VIX Rotation

Volatility Snap: VIX Based Always In Trading Model

Share
Categories : Articles, Blog
Comments (8)
Jan
11

S&P 500 Jan 13 to Jan 17 Outlook

Posted by: News Robot | Comments (0)

Lawrence’s Comment

Recap
A frustrating week for many. As oppose to finding resistance at Y-0 and start a pullback, ES managed to hold in a tight range above previous week close. By the time NFP was out, it managed to hold week mid and blasted higher to close above previous year close. Closed the week above Y-0 and midpoint.

Outlook
Bullish for a test of Y+1. Breadth deteriorated a lot. This push up will likely be carried by a few names only.

Expect sudden volatility this week due to compression in tick reading.

Share
Categories : Daily Commentary
Comments (0)

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors.
Please read full disclaimer here.

Connect

DaytradingBias on Facebook DaytradingBias on Pinterest DaytradingBias on Google+ Follow DaytradingBias on Twitter Subscribe DaytradingBias News Feed We accept Bitcoin here



© 2014 Lawrence Chan / DaytradingBias.com. All Rights Reserved.