After Monday’s sharp decline the futures of S&P500 was flat until the end of the trading week. It failed to overcome the zone of support (50-day MA and 1300, an option barrier). On Friday the market started rallying on rumors that the USA’s debt ceiling will finally be increased by $2.4B. The week was closed around Friday’s high. However, further strengthening is under question because several rating agencies suppose that this is a temporary measure, which cannot solve the problem of the US public debt increase in long-term perspective, and say they will probably have to cut the US credit rating in the short run. Consequently the current perspectives of the market in question are determined by political rather than fundamental factors. In terms of tech analysis, at this point it is necessary to look for possible support/ resistance levels. The current levels of support are the 50-day MA and the option barrier 1300, as well as June’s max volume cluster 1284, the 200-day MA (the current value is 1277), the option barrier 1250 and the 6-month low 1241.25. The levels of resistance are 1350, 1400, and the 6-month high 1373.5.
Last week the actual volatility of S&P500 was rather high: the weekly range was equal to 44.25pts. The highest level of volatility was seen on Tuesday (28pts) while Friday was the day of the lowest volatility level (15pts). The expected volatility of S&P500 rose as well: the VIX volatility index exceeded the 20 level. The current level of expected volatility is high, which means that the option strategies implying volatility sales are more suitable. Volatility purchases can be considered only after the expected volatility of S&P500 declines.
This week’s economic calendar:
This week is not so rich in significant economic reports, which confirms that selling volatility is more appropriate at this point. Volatility spikes are possible on Wednesday (Existing Home Sales) and Thursday (Unemployment Claims and Bernanke Testifies).
Provided by the Department of Options,
