Tuesday, January 14, 2014

SPX/VIX-Discounting Biggest Move in Month

The S&P today (Tuesday, Jan 14) has retraced an extraordinary 16.50 points of the 23.5 point decline on Monday.  This is particularly interesting in that it follows a very strong decline in the Nikkei (3%) last night.  Some might say, ‘chicken or egg’ –  the Nikkei had fallen as result of the s&p drop on Monday, but there seems to be some unexplained divergence today. 

As a guide, I like to require a ‘significant’ move ‘discounted’ by a recovery of at least half of the move within 3 business days.  Yesterday’s s&p decline should be considered significant (largest in a month) and today we test the value in its implications for still lower prices.  It would need to settled above the ‘mid’ (half of the open/close in futures) from Monday in order to ‘discount’ that bearish implication.  Forcing a settlement below this (1826.75) ‘mid’, one might consider selling the s&p outright here (last 1831.50). 

Additionally, one might consider the very hard decline in VIX as an alternative approach.  Cash is down 1.25 as I write to 12.03 having yesterday seen the biggest jump in a month.  Interested clients should consider...

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