CNBC has revised their Option Action show which is aired every weekday night at 5:30. They have really beefed up the Friday show to the point that we think it is one of the best option oriented shows on the air. Check it out.
The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Major Averages Crushed By Hawkish Fed Comments
The major averages opened the week sharply lower extending the losses from the previous Friday as investors cast an eye to the Jackson Hole Economic Symposium and waited on a speech from Fed Chair Jerome Powell. The DJIA sank more than 1,000-points over a three-day stretch before rebounding midweek on hopes that weaker than expected economic data would sway the Federal Reserve to slow down on rate hikes. Stocks were able to grind higher again on Thursday as Initial Jobless Claims and Q2 GDP showed that perhaps the economy could sidestep a recession despite rising rates. Powell’s hawkish comments on Friday weren’t what the bulls wanted to hear as the Fed Chair reiterated that it would keep rates higher for longer and stay the course until their job was done. The different indexes sank into the close in a broad based selloff. Every sector closed the week red led down by growth and technology stocks. Interest rates moved higher with the yield on the two-year T-Bill closing at 3.36% and the 10-year T-Bill landing at 3.04%. The US Dollar finished just shy of its 2-year high. Crude oil prices were also on the rise after OPEC said it might cut production. The S&P 500 and NASDAQ finished lower for a second straight week, while the DJIA was down for the third time in four weeks.
For the period, the DJIA lost 1423.34 points (-4.2%) and settled at 32283.40. The S&P 500 gave up 170.82 points (-4.0%) and closed at 4057.66. The NASDAQ dropped 563.51 points (-4.4%) finishing at 12141.71. The small cap Russell 2000 slipped 58.07 points (-3.0%), finishing at 1899.28.
Market Outlook: The technical condition of the market deteriorated as the recent rally stalled at key resistance. The technical indicators slipped back into a negative configuration with MACD, a short-term trend gauge, crossing into bearish ground while Momentum, as measured by the 14-day RSI, slowed and fell into negative territory. Breadth was also negative as the NYSE and NASDAQ Advance/Decline lines lost ground for a second week showing the majority of stocks are under distribution. In addition, new 52-week lows outdid the new highs on both exchanges. Sentiment is neutral but both retail and professionals saw an uptick in the number of bears. The American Association of Individual Investors (AAII) saw bulls slip to 27.7% from 33.3% a week ago, while the National Association of Active Investment Managers (NAAIM) Exposure Index fell to 54.9% from 64.4% last week. A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.
Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Currently, the CTI is Negative at -1, down two notches from the previous week. Cycles B and E are bullish, while Cycles A, C and D are bearish. The CTI is projected to remain negative into November.
Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. The Momentum Index is negative at -4, down 12 notches from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 1828 units while the number of new 52-week lows exceeded the number of new highs on four sessions. Breadth was also negative at the NASDAQ as the A/D line fell 2747 units while the number of new lows out did the new highs on four of the five days. Finally, the percentage of stocks above their 50-day moving average fell to 73.4% vs. 78.1% the previous week, while those above their 200-day moving average eased to 36.1% vs. 40.8%. Readings above 70.0% denote an overbought condition, while below 20% is bullish.
Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Neutral at +2, up two notches from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 8/24/22 shows outflows of $1.2 billion.
Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bearish as of the week ending 8/26/2022 (DJIA – 32283.40).
Ask Mr. Seifert
Question: What Is IV Rank (IVR) And IV Percentile (IVP) And Why Do I Care?
Answer: Implied volatility rank (IVR) is a statistic measurement used when trading options. It reports how the current level of implied volatility in a given underlying compares to the last 52- weeks of historical data. That means if implied volatility ranged between 30% and 60% during the last 52 weeks in stock XYZ, and implied volatility is currently at 45%, XYZ would have an implied volatility rank of 50.
Similar to implied volatility rank, implied volatility percentile (IVP) provides insight into the current level of implied volatility as compared to the last 52 weeks of data. Implied volatility percentile reports the percentage of days over the last 52- weeks that implied volatility traded below the current level of implied volatility. Market participants can use both IV rank and IV percentile in conjunction with each other to assess the current level of implied volatility in a given underlying as compared to the last 52 weeks of data.
Generally speaking, market participants often view elevated levels of IV rank and IV percentile as attractive for selling options when it is over 50 and great when it is over 80. Depressed levels of IV rank and IV percentile, under 20 are viewed as attractive levels when buying options.
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