Wednesday, March 24, 2010

Calm Before the Storm?

The volatility indexes have been in the doldrums over the last several months, trading below 20 for most of 2010. As the April Energy Dates (see left side of this page) approach traders should monitor both volatility indexes for clues about the sustainability of the current market advance. A break above the exponential moving averages--especially the 200 day ema--will forewarn traders of an impeding decline.
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Low volatility values and excessive call purchases versus put purchases are often a harbinger of a market reversal.

The short term S&P 500 (cash) is continuing to rally, albeit with waning momentum and diverging RSI values. The last mini-pivot at 1152.88 (low of March 22nd) and the Jan 19th high of 1150.45 should provide short term support on any 'corrective' decline. However, a violation of this 'band of support' and a subsequent break of the 21 day exp. mvg. ave. would signal the onset of a deeper decline--especially if accompanied with surging VIX values.

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