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).