CBOE Volatility Index ($VIX) Low Data Readings Sustain New Market Highs

August 18, 2016
By Vlad Karpel

Stocks are chopping around in a range and without much vigor into midday Thursday. After opening modestly lower, the S&P 500 is up .9 points to 2183.12 and in the middle of today’s narrow 6-point trading range.

Treasury bonds are also flat despite better-than-expected readings on jobless claims, manufacturing (Philadelphia Fed) and Leading Indicators. The yield on the benchmark ten-year remains near 1.55%.

Weakness in the dollar persists and gold is up $6 to $1355. Crude oil gained $1.16 to $47.95 amid broader gains in the energy space.

On Wall Street, Energy (XLE) is also the top performer. Utilities (XLU), Telecomm (IYZ), and Consumer Staples (XLP) are higher as well. Tech (XLK) and Healthcare (XLV) are flat, but there are no losing sectors.

CBOE Volatility Index (VIX) is off .54 to 11.65 and options volumes remain a bit light. Roughly 3.2 million calls and 2.5 million puts traded across the exchanges, yielding a relatively low put-to-call ratio of .78. Projected volume for the day is 13.5 million and 5% below the one-month daily average.

iShares Emerging Markets Fund (EEM) Sep 23rd 36 calls, iShares Emerging Markets Fund Aug 32.5 calls, and SPDR 500 Trust (SPY) Sep 222 calls are the most active options through midday Thursday.

Relatively high call volume and low readings from VIX reflect the bullish underlying tone that has helped buoy stock market averages near record highs, where they have remained throughout the week. Take a look at the chart of the S&P 500 below. While it is near record highs, the daily moves have been very small and the index is unchanged for the week.

See Tradespoon’s Stock Forecast on S&P 500 (GSPC)


Tradespoon’s Stock Forecast on S&P 500 (GSPC)

While the market is trading decidedly flat, there are few apparent catalysts to shake things up in the short-term. On the one hand, the second quarter earnings reporting season is winding down. At the same time, the release of Fed minutes yesterday did little to shed light on future monetary policy. The odds of a July rate hike remain low at roughly 10%. The upcoming economic calendar is also light, with no data of importance slated until housing data on August 23rd and 24th.

Yet, as history has shown, anything can happen in today’s fast-moving unpredictable markets. Note that tomorrow is the monthly expiration for August options. So, expect an uptick in activity ahead of the weekend. Then, it won’t be long until the market begins to look towards a busy economic calendar in the early days of September, including monthly jobs data on the 2nd before a long three-day weekend. That, and the return of vacationers after the Labor Day break, could set the table for increased volume heading into the historically volatile months of September and October.

In the meantime, look for the S&P 500 to face resistance around recent highs of 2190 (closing) and 2194 (intraday). Support at 2183, 2178, and 2168.

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