By Jeff PIerce

Below you have the daily and weekly charts of the VIX to garner some perspective about where we are and where we could be heading. The Vix has really spiked these past 2 days and it looks as though momentum has shifted back to the bears where just a few weeks ago it looked as if it was blue skies ahead for the markets. I never was convinced as I personally feel that the markets were broken during the October selloff and what we’ve been seeing for the last 6 weeks is one big long con trying to suck the little guys back into the markets. While I still could be proven wrong if we start to head up from here but my timing signal suggests there’s more selling ahead and that we’re in a “sell any rallies” mode.

vix.daily

We may have to digest the spike in the Vix with some sideways to up action, but essentially I see more downside coming for equities.

vix.wkly

By Chris Ebert

Problems for Option Buyers

Ask anyone who has ever bought stock options, and you’ll likely hear at least one tale of regret. That’s because it’s possible to suffer a loss on stock options, not just when picking the wrong stock, but even when one is correct about the direction of the stock price.

It’s bad enough for a trader to pick the wrong stock and lose, but to pick the right stock and lose can be downright maddening. Without a thorough understanding of the behavior of stock options, it’s not just possible to lose money buying options on the right stock at the right time, it is actually very common.

insuranceIt’s not that buying options is foolish; buying the right options at the right time can be an important part of a disciplined method of participation in the stock market. The problem for many traders is that they tend to view options as an asset, when in fact they are not assets in the traditional sense.

Options are more akin to insurance policies than they are to tangible assets like stocks. Thus, the difference between trading stocks and trading stock options is as different as the business of real-estate investing and the property-insurance business. They are entirely different creatures. Nonetheless, it behooves those involved in one business to pay attention to significant shifts in the other if the two are connected.

A doubling of fire insurance premiums, for example, should pique the interest of a real-estate salesperson, even though the salesperson may likely not be directly affected. Any significant change in the industry deserves attention.

The stock-market industry has just experienced one such rather significant shift. For the first time in several months, option buyers by and large are now experiencing uncommon gains. This shift has implications for anyone in the industry – any participant in the stock market – even those who are not directly involved with options.

It’s a Buyer’s Market

Buying options has suddenly become quite profitable. The list of profitable options, on the S&P 500 index as a whole*, includes a lot of option buyers this week. What that might mean for folks in the stock market is discussed in the analysis that follows:

  • Selling Calls is profitable (Covered Calls)
  • Selling Puts is profitable (Naked Puts)
  • Buying Calls is profitable (Long Calls)
  • Buying Puts is profitable (Married Puts)
  • Buying both Calls and Puts is profitable (Long Straddles and Strangles)
Click on chart to enlarge

Click on chart to enlarge

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration.
EXAMPLE: If Long Call premium paid is $2 when SPY is trading at $200, the loss is 1% if the option expires worthless.

As noted above, the options business is like (more…)

By Poly

This is an excerpt from this week’s premium update from the The Financial Tap, which is dedicated to helping people learn to grow into successful investors by providing cycle research on multiple markets delivered twice weekly. Now offering monthly & quarterly subscriptions with 30 day refund. Promo code ZEN saves 10%.

Since my last gold update, one week ago, gold has added just $10 during a period of the Cycle where the majority of the gains should have occurred. On the surface, yet again, more of the indecisive type of action that has in the past inspired short sellers to become more aggressive.

As they have done during past lightly traded holiday periods, the shorts came out firing into the thinly traded market with the goal of running the stops on gold. Obviously, they succeeded in doing so with Silver, at one point during the assault sinking it by over 10%, another classic after-hours raid of a market devoid of “active traders”.

But a very curious development occurred this time, one that I feel has been given far too little attention to date. Not only did gold repel the battering, but it staged a rather impressive reversal. The real tell though was in the silver pits, where 6 year lows were reversed to produce one of the biggest daily price movement in decades. This is significant, because the raid occurred during a very vulnerable time in the Cycle. The type of weakness and vulnerability we’ve seen these past 3 years would have been no match for this type of raid. A continuation of the bear market would have immediately ensued, leading me to believe that the character of this market has changed.

On the flip side, the gold sector isn’t exactly flying either, so I must categorize the overall evidence here as being slightly conflicting. The natural tendency is for this market to continue to be sold, that’s the primary trend. So seeing less than stellar buying here I attribute more towards nervousness rather than outright weakness. With past new Investor Cycles, we would experience these sharp, counter trend and short covering moves. But not so this time around, possibly suggesting that this action is bottoming behavior rather than counter-trading.

So overall, I still consider the developments here as constructive, mainly because we have a Day 15 Cycle high now. That is almost always going to mark a Right Translated Cycle, which confirms my count where this is a 1st Daily Cycle.

We’re getting close to a Cycle top now; I believe many people are expecting one. But I also know that 1st Daily Cycle’s average 29 days in length and the top comes on Day 19. We’re cutting it close, but I would like to see one last 3 to 5 day push higher first to force some of the short speculators to capitulate. On the downside, just watch the trend-line and the 10dma (currently $1,195). A close below that moving average, this late in the Cycle, will certainly signal a DCL is coming.

12-3 Gold Daily

Related Posts:

Stairs Up And Elevator Down?

Crude Has Likely Hit Rock Bottom

Plenty Of Reasons To Explain Recent Selling

By Jeff Pierce

Oct 15th – Nov6h

  • 17 trading sessions
  • 1705 point gain on Dow
  • 4 down trading sessions with all closing off the lows and near the highs but on one day

Nov 7th – Nov 28th

  • 15 trading sessions
  • 274 point gain
  • 4 down sessions with all but one closing at/near the highs

While it’s impossible to know if the markets are going to ever correct again (slight sarcasm), one can’t deny that the strength of the recent move is deteriorating. Staunch bulls could argue that we’re simply digesting the gains, and that is something one should consider here, but it’s really hard to believe that some sort of correction is coming based on the strength of the move and the refusal for any sort of selling to stick.

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