S&P500 (SPX) Technical Analysis And VIX Indices – 7/9/2022

While the market continues the current uptrend, based on the VIX indicators, the market seems to think this is a short-term uptrend rather than a sustainable one.

VIX Indicators

The Pentile Rank (PR) of VIX in relation to VVIX, VIX9D, VIX3M, and VIX6M shows the market has calmed down in the short term. VIX9D/VIX value has declined to RP 20%.

However, the PR of VIX/VIX3M and VIX/VIX6M remain pretty high at around 80%, while the PR of both VIX3M and VIX6M has dropped somewhat to about 70%.

This indicates the market is still expecting high volatility in the coming weeks if not months.

PR of VVIX continues to be extremely low. VVIX is calculated using the out-of-the-money (OTM) options of VIX options so when it is low, it indicates two things.

VIX options are cheaper (choose strategies to buy rather than sell VIX options).
Low volatility is expected

VVIX has been hovering below 100 since 6/22, which is when SPX reached the recent low and started to turn around (see the green box in the SPX graph below).

While you might think this could be a good indicator to tell when the market has started its uptrend, the same phenomenon can be seen between late May Early and June, when VVIX dropped significantly (table below).

Yet, the market kept falling soon after that. As we can see most of the other VIX-related indicators were still giving warning signs of both short and long-term market volatility.

SPX Technical Analysis

As we discussed in the last week’s technical analysis, after SPX penetrated the recent downtrend line (green line) to the upside mid-week, it continued to climb up.

It is also notable that SPX has crossed the 25-day moving average (purple line and the yellow box).

A large gap (yellow arrow) located at 4000 level still remains to be filled. It is too early to tell if the current uptrend will fill the gap at this point.

The Consumer Price Index is coming out on Wednesday, July 13th so will be interesting to see how that will affect the market.

I will be watching closely these three things in the coming days and weeks.

Will the current uptrend break the 50 days Moving Average line? (Bullish)
Will the current uptrend line be broken? (Bearish)
Will the current uptrend goes beyond the next downtrend line? (Bullish)

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Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.