SPX TA 9.3.2022

Are We There Yet? Did The Market Hit Bottom? – VIX & SPX Review 9/4/2022

The market continued its decline and paused in late Thursday and early Friday morning, then continued its decline on Friday afternoon.

One thing I learned is to use the 130 Moving Average (average of 5 days of market data) on a 15-minute chart to see if the breakout was likely to last or not.

It is pretty clear that the shape of 130MA is still in a downtrend and even though SPX broke through it, such a spike likely does not last.

For a spike to last and start moving uptrend, the 130MA needs to be flattening or on the way up.

SPX TA 15 minutes 9.3.2022

VIX Related Indices

The Percentile Rank (PR) of “VIX / VIX Related Index” ratios all spiked significantly except VIX9D:VIX ratio, which remained below 50%.

The Percentile Rank (PR) of VIX, VIX9D, VIX3M, and VIX6M jumped to 50% – 60% range.

In case you are interested, here is more information about why it’s a good idea to monitor these VIX indices.

The VIX table for these calculations is now automated and available here.

VIX ratio 9.3.2022

VIX indices 9.3.2022

VIX futures term structure is still in contango even after a significant market drop (first image below). This is likely due to the cause of the market drop being a “known” event (rate hikes by the Fed).

In contrast, this was not the case when the market started dropping earlier this year, especially when the Russia / Ukraine war broke out. VIX futures term structure was in a backwardation structure (second image below).

This is why trading VIX-related ETPs such as UVXY and VXX could be more stressful because a large spike in VIX spot price directly translates to the price of the ETPs.

Whereas further out VIX futures do not spike as much and this is why now I prefer to trade VIX options instead.

VIX futures structure 9.4.2022


VIX futures term structure feb 21 2022

VIX futures term structure Feb 21st, 2022

S&P 500 Technical Analysis

The market continued to decline after the large Friday drop last week caused by Federal Reserve Chairman Jerome Powell’s speech at the annual economic policy conference in Jackson Hole.

S&P 500 easily penetrated the 50% Fibonacci retracement level this week and tested the 38.2% Fibonacci retracement level. We are now one step closer to the gap at the 3,800 level, which is close to the 23.6% Fibonacci retracement level as well.

SPX TA 9.3.2022

My Personal Thinking

Looking at the daily chart, the market moved sideways on Thursday and Friday and may continue for a few more days as it tries to penetrate the 38.2% Fibonacci retracement level.

It will be interesting to see if the market will break through the secondary downtrend line in the coming days. Not doing so increases the probability of filling the gap at the 3,800 level.

There is now a significant space (time gap) until the market reaches the primary downtrend line so the bear market will likely last until the end of the year. This of course does not mean the market will not rally, but until the primary downtrend line is broken, any rallies should be looked at with skeptical eyes.

VIX futures term structure remaining in contango is a welcoming for people who short VIX. Unless there are new events, VIX spikes will not last long and such spikes are great opportunities to short VIX.

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