Markets Volatile Days Before Options Expiry

There was plenty of intraday volatility today especially in the silver market as we inch close to the options expiration for January 11. The VIX was up 10% and is now much farther away from it’s long term support level. Many traders use the VIX as an inverse indicator to what the market is doing and a bounce off of support may mean that a stall in the equities market may be in order. I said before that I’m not calling a top in equities until there is confirmation of a correction, however I do think that this is worthy of mentioning regardless and even so, this bear market rally has gone on for quite some time and could see a correction soon before continuing. For the record, I still remain as bearish as ever on the fundamentals.

Long term support for the VIX adjusted itself from $15.23 to $15.40 a few weeks ago and has since made only one serious attempt at testing that low again. Despite the big move to the upside today, the slow stochastic has us only at 25.87, meaning that there is plenty of momentum for a run at the top resistance line.

Added support to my claim is the key reversal in QQQQ. Weighted heavily in AAPL, (which also reversed violently today) Powershares QQQ proved to be well overbought prior to options expiration. Though news regarding AAPL and Steve Jobs’ health doesn’t particularly effect fundamentals of other companies, it does provide an argument that if AAPL is too risky to hold because of Jobs’ health, then what is the rest of the market worth? In any case, there’s some food for thought for those who may be anticipating a possible retracement in equities.

Silver also reversed intraday thought it managed to close near the open this morning which is about in line with respective closes and open of the last 4 trading sessions. There appears to be some indecision as the price fluctuates through the $28.75 level. Today we made another run at the 20 Day MA though were unsuccessful. In addition, the bears also made a run at the 50, but they too failed. I think it’s possible that we stall here a little longer as the market decides what to do before options expiration.

In the meantime, that may give the MACD a chance to cross the 0 level for the first time in at least 5 months. That would serve as an indicator that silver has fully come down from overbought, as if price activity, the RSI falling below 50, and the stochastics didn’t already indicate that. In any case, from a trading perspective, wait for confirmation of a move either way, and as always, I remain extremely bullish on silver’s long term fundamentals.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

One Response to Markets Volatile Days Before Options Expiry

  1. Pingback: Gold And Silver Hit Hard One Day Prior To Options Expiration « Aaron Basile

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