Stocks at All-time Highs, VIX Index Falls to 23-Year Lows

Stocks at All-time Highs, VIX Index Falls to 23-Year Lows

Stocks at All-time Highs, VIX Index Falls to 23-Year Lows

$DIA, $SPY, $QQQ, $VXX

The Trump Rally Extends

Strong earnings boosted US stocks on Tuesday, driving the S&P 500 to a record high while also sending a popular options-based gauge of expected price volatility down to a more than 23-year low.

The CBOE Volatility Index (NYSEArca:VXX), better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, was down 0.24 pts to 9.19, after earlier falling to 9.04, its lowest since December 1993.

The VIX is derived from the price of S&P 500 Index options. A low VIX reading typically indicates a Bullish outlook for stocks.

The volatility index, whose long-term average level is around 20, has been extremely subdued this year as a surging stock market has chilled demand for options that provide protection against price declines, driving down the index itself.

Market analysts peg the relative tranquility in stock market action to a mix of factors including a generally upbeat macro-economic backdrop and the lack of any big, risky events that could potentially stoke volatility.

And the sense of calm is not restricted to the stock markets.

Bank of America Merrill Lynch’s gauge of 1-month Treasury market volatility was at 46.9963, a record low.

Some traders in the options market have taken advantage of the low levels of volatility to load up on contracts that profit from a pick-up in stock action.

Over the past few days there has been a tremendous amount of options activity in VIX. These trades all have a common theme, investors expect volatility to move higher after the Summer.

Last Friday, 1-M+ VIX options contracts traded in 1 go. The trader makes money as long as the VIX is between 12 and 35 at the October expiry.

Tuesday, the US major stock market indexes finished at: DJIA +100.26 at 21613.43, NAS Comp +1.37 at 6412.14, S&P 500 +7.17 at 2477.09 all settling at fresh all-time highs.

Volume: Trade on the NYSE was heavy with 1.12-B/shares exchanging hands.

  • NAS Comp +19.1% YTD
  • S&P 500 +10.6% YTD
  • DJIA +9.4% YTD
  • Russell 2000 +6.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.40) Bullish (0.41) Bullish (0.29) Very Bullish (0.50)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.30) Bullish (0.29) Bullish (0.35) Bullish (0.25)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (0.23) Bullish (0.33) Bullish (0.29) Neutral (0.06)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.48) Bearish (-0.33) Very Bearish (-0.65) Bearish (-0.46)

 

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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