During the previous trading week S&P500 futures moved within a correction to the previous rising medium-term trend; the engine for the fall included a sharp decline in prices or oil and precious metals. Late last week there was an attempt to regain ground above the option barrier at 1350, but it failed. Therefore, the level at 1350 (the option barrier and the level of maximum volumes of last week) has now turned from a support into a resistance; other resistances now include the year's high at 1373.5, the option barrier at a round number of 1400 and a local high of previous periods at 1441; support levels: local lows at 1325.25, 1290.25 and 1241.25, 50-day moving average with the current value of 1317, option barriers at 1350 and 1300, and 200-day moving average with the current value of 1226.
The weekly range of S&P500 futures reached 48.25 futures points while daily movement ranges for some days varied from 23.5 points on Thursday to 12.75 points on Tuesday. As concerns expected volatility, the VIX values were at a low on Monday after news came out that Osama bin Laden, the terrorist leader, was terminated when S&P500 reached a new year's high, and reached their high by late last week when a reversal of the medium-term trend became very likely.
The calendar of economic news releases for the next week:
Volatility should be traded carefully now as buying could be dangerous because of the current increased expected volatility and a sharp decline in value of purchased options in case volatility subsides and the situation stabilizes; selling, on the other hand, can have disastrous consequences if the trend really reverts. This week the best tactics is to expect the expected volatility to subside and then look for entries on the eve of important news releases. A sudden rise in actual volatility is most likely next week after news to be released on Thursday.
Prepared by: The Options Faculty within the MF Academy
