Options Course: On Saturday, December 1, the CBOE, Option Pit and OptionsProfits are hosting a full-day class, Using Volatility to Improve Directional Trading CLICK HERE FOR INVITE AND TO REGISTER.
The age-old wisdom to get out of a hole...is to stop digging. The price application of that basic logic can be used to identify the bottom base in asset markets.
Action last week in gold, crude and stocks suggest that a reversal may be in the works.
Gold made a textbook turn with new lower lows November 5th at $1672 to power higher and close positive $8 on the session. The flush and reversal then confirmed the bottom with a run above the $1700 pivot the following day. This is how markets turn by exhausting the selling pressure.
Side note: the long held December gold call spread was sold last week at $4500 for a 180% profit instead of waiting until months end to capture the spread maximum. Forfeiting the potential $500 additional gains enabled entry into an April call spread now for immediate bullish positioning. The new April $1775/$1825 call spread sits only 2% below at the money with gold trading at $1740. A 5% move puts the spread fully in the money.
Crude has traded sideways for the last 14 sessions, almost three full trading weeks, after the decline to the $84 level October 24th. The same November 5th lows that put a bottom in gold led to a fake out breakout in oil. New relative lows at $84.35 finished that day positive $1.30. An ensuing rally run to $89.82 has voided that base with a drop back to new $84.05 last Wednesday.
Crude has more emotion than most markets and volatility is best measured on weekly action. New lows last week at July levels with a $1.20 gain for the five day period offer bulls encouragement.
Stocks got hit hard last week with a break below 1400 in the broad market S&P and 13,000 in the blue chip Dow index. The downside price over reaction with new lows Friday and a higher close sets up for a probable rebound run.
Bullish divergence with new price lows that did not accompany new volatility highs signal a turn. Even more interesting was the declining intraday CBOE Volatility Index (VIX) when the Dow was off 100 points Friday.
A June volatility peak at 28 and fall lows at 13 put the halfway resistance at the 20 level. The high Friday at 19.40 has backed back down to under 18 today Monday to begin a new week. The S&P support at 1363 is the critical level to watch the bottom to hold.
Across the Pond Perspective
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