Edward Culchenko
During the last trading week S&P500 was moving in a range around 1350. As QE2 is nearing its end and there are no signs of QE3, more and more investors start turning “bearish” (the amount of short positions is growing). At the same time the “bears” are not ready to lose their ground. So there is a change of an inertial upward momentum. At this point the closest resistance levels are 1373.5, which is the local high (the upper border of the range) and 1400, an option barrier and a psychological level. The closest support levels are 1325.25, the local low (the lower border of the range); 1319, 50-day SMA; 1300, an option barrier and 1290.25, the local low.
Because of the flattish moment the weekly movement range of the S&P500 futures was below the average (29.5 pts). Wednesday was the most volatile day (the daily range was 25.25 pts) while Monday was the day of the lowest volatility level (11.75 pts). However, despite the fact that the actual volatility was low, the expected volatility remained high throughout the week as the result of investors’ concerns over a possible change of the mid-term trend, which increased the risk of volatility purchases. Last week the value of the VIX indicator (showing the level of expected volatility) was moving in the range between 15.79 and 18.59 pts.
This week’s economic calendar:
This week’s most significant news releases that can increase the volatility of S&P500 are: FOMC Meeting Minutes, Unemployment Claims, and Fed Chairman Bernanke Speaks. It is not recommended to sell volatility as there is a chance of a trend reversal. It is better to buy volatility when the expected volatility level is low not long before the major new releases and closing the trade after the news.
Provided by the Department of Options,
Edward Culchenko
