Wednesday, September 3, 2014

Emini S&P 500 Index; Time to Harvest

Emini marked a 15th new session high without a three session pause today.  By such reckoning, it appears that this bullish advance has staying power.  Today’s advance, if prices hold current (+8.5 points) would be the largest advance since August 19th, about half a month ago.  What is more than interesting is the very slight differential between open and close over the last 7 sessions.  In reviewing the last 5 years, we find only 4 other instances where the collective difference between the opening and closing prices for the nearest to expiry Emini is as low or lower than the current 16.25 points (avg 2.32 per day). 

In further review, the prior 4 periods where the collective difference between open/close was as constrained, the VIX index was never as low as current levels.  The July 30, 2013 period of restrained activity found the VIX close at 14.93.  Low, but not as low as yesterday’s 13.56 settle.  The 200 day moving average VIX for the July ’13 date was the second lowest of the samples at 13.39 .vs. yesterday’s 5 year record low 200 day average of 12.25. 

Taking into consideration that the period of analysis has largely fallen within the remarkable bullish advance since the early ’09 S&P 500 Index low, we would expect that prices generally advanced even following periods of very modest open/close differentials.  The table below highlights the collected data and illustrates the similarity between the most recent July ’13 period and today.  Following that period of consolidation, the Emini pulled back 3.4% over the next month. A similar reverse would find ESU4 at the 62.8% Fibonacci retrace of the 6+% advance since the August 8th 1890 low. 

Emini and VIX

5 Years Where 7 Day Difference Open/Close 16.25 or Less
7 Day O/C Total
VIX Close
VIX 200 Day MA
1mo Chg Emini






The VIX Index has formed a bullish window on August 28th that has remained open.  Yesterday’s Index price action formed a bullish inverted hammer.  This had followed a bullish hammer on August 25th and another bullish inverted hammer on August 21st, 1 day after the Fed released the Minutes from the July 29-30 FOMC meeting. Today the Fed shares information from the Beige Book which details regional economic performance and guides the Feds deliberation for the upcoming September 17th FOMC meeting.  Some might expect the recent strength seen in economic reports to translate into a more hawkish tone to today’s Beige Book than has been seen over the last year.  If that is the case, heightened concern for the removal of excess accommodation earlier than currently anticipated may pressure S&P’s and raise the level of the VIX.   

As indicated recently, the consolidation over the prior week or so may be a work-off of overbought conditions allowing for a more immediate further advance.  However, the strikingly small differentials between opening and closing prices over the last 7 sessions give rise to concerns of indecision on the part of the bullish contingency.  This group has every reason to be encouraged by recent gains and their lack of enthusiasm is disconcerting, giving rise to the cautious tone presented here.  Should prices unexpectedly advance from here in straight line, we shall find that we have not fully participated in that advance.  If instead, the anticipated correction is forthcoming, we shall have amply informed.  

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