Last week the futures of S&P500 broke the 50-day MA and rebounded from 1300 (an important option level close to the lower border of the bearish sloping channel) and by the end of the week got back to the previous week’s close. The upward movement was suspended just close to the upper border of the channel, which may indicate a possible decline for the current trading week. Under such a scenario, the closest support levels will be 1300 (an option barrier and a psychological level), the lower border of the range, 1290.25 (the local low), 1250 (an option barrier), the 200-day MA and 1241.25(another local low). If the upper border of the channel is overcome and the price keeps rallying, the closest resistance levels will be found at 1338 (May’s max volume), 1350 (an option barrier), 1373.5 (the high of the year) and 1400 (an option barrier and a round number).
The weekly range of the futures movement was 31.5 pts. Wednesday was the most volatile day (the reversal day) - 22.25 pts – while the lowest volatility was seen on Friday before the long weekend - 9.25 pts. However the expected volatility of S&P500 changed differently throughout the week: the VIX indicator reached its high on Monday - 20.03pts. Later, despite the decline of S&P500, the expected volatility declined as well, which is not typical of the index. The low was reached on Friday as S&P500 rallied – VIX passed 15.45 pts. The expected volatility range was considerable while S&P500 was flat. That was a problem for volatility buyers while those who sell volatility gained profit.
This week’s economic calendar:
Monday (May 30th) is a day-off in the USA. The most significant news reports that can influence the volatility of S&P500:
· ADP Non-Farm Employment Change
· ISM Manufacturing PMI
· Unemployment Claims
· Revised Non-Farm productivity
· Non-Farm Employment Change
· Unemployment Rate
Taking into account the low level of the expected volatility value seen at the end of last week and a high probability of S&P500 decline (which is usually attended by the growth of expected volatility), it is better to buy the volatility of S&P500 with entry points in advance of the mentioned news releases.
Provided by the Department of Options,
