Last week we noted the combination of waning momentum and the upcoming sequestration chatter was increasing the probability that the overdue market correction was about to begin. Now the increasing volume on the two down days confirms the short-term momentum is downward.
There are several reasons for choosing USO for our downside suggestion including the fairly high 10 day correlation of 78% with S&P 500 Index along with the recent seasonal pattern that has seen crude oil decline from February – early March highs to June lows the last two years.
In this post, we offer an iShares Russell 2000 Index (IWM) conditional hedge idea for the occasion.
Like a broken clock that is right twice a day, those who have been calling this market overextended and due for a correction will eventually be right. The tide will turn the question is when.
Friday’s Top 5 included three that qualify for our Volatility Kings master list with increasing implied volatility going into their reporting dates.
Here, we update our important indicators and check the progress of the IWM Calendar trade idea from last week.
Now being widely reported by the financial media, it is time to update the January Barometer, also called the January Effect
While we all know a correction to test the previous resistance will occur, the timing along with triggering news or unbalancing forces is yet to be determined. It could occur on the upcoming employment report or the market could continue higher for some time, but for now correction predictions, are just guesswork.
While Newton originally expressed it somewhat differently in 1687, the popular interpretation is that “An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”
Although the increasing VIX premium over the VIX cash suggests the professional hedging community is growing more cautious we think this is the time to increase long positions and accordingly have another long call spread idea for the occasion.
From the S&P 500 Index (SPX) perspective the breakout and close above the September 14 high at 1474.51 confirms a new uptrend measured from the November 16 low at 1343.35 with the December 31 reversal low of 1398.11 making the second point for our upward sloping trendline as shown on the chart below.
Originally introduced late last year, Volatility Kings presents a list of companies having a tendency to experience increasing options implied volatility as their quarterly reporting dates approach.