Altervest Ltd

12/04/2018

Volatility Nerds- Time to look at black swan hedges

I recently shared a reversed head and shoulder formation expecting a bounce from 2630. Let's say that I called the formation early (I called the bottom of the shoulder instead of waiting for the neck line break). I was very disappointed with yesterday's rally which did not manage to break the crucial 2810 level (neck line). Followed by today's price action which what rather horrible (one of my top gun volatility friend reminded me that the market makers' books are now empty following so much volatility....all the old limits in the books have been touched and there is not enough conviction to renew them). Then I took a look at some longer term charts and the charts looked bleaker than expected. First the second shoulder went way too low for my liking. Then I realised that we are potentially in a triangle formation not in a head and shoulder. In fact I think we are in a A-B-C down technical pattern (or some kind of bear flag). That might mean nothing to you but according to Connie Brown CMT, the wave C down is heaven for short traders. So, in these market conditions I think it is worth looking at black swan hedges. I will break my head over that thought for the next few days or weeks if we are lucky.

Happy trading everyone!

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11/15/2018

VOLATILITY NERD COMMENT

Altervest's Volatility Nerd comment will now be published directly on our page rather than via e-mail.

REVERSED HEAD & SHOULDER ON MAJOR U.S. INDICES

Today, we were looking closely at the market to see if any sign of strength would show up and validate the apparently very popular reversed H&S formation that seems to be forming on the major U.S. stock indexes.

Here is my interpretation of today's technical signals:

SPX:

- bullish engulfing (for those who know Japanese Candlesticks) positive formation that may indicate a near term bottom
- 2710 was a support level and was broken but today we managed to close above it
- Failure to hold above today's low 2670.75 would be very bad news and would jeopardize significantly the current Reversed H&S formation
- I would expect a rally towards the neck line around 2815
- The reverse H&S target is 3027 (as a perma bear it almost hurts to say )😉 and if this is a H&S formation...the target should be reached approximately by year end.

Nasdaq and Russell show similar formations.

What does it mean for Volatility traders?

Although the volatility curve is still in backwardation, technicals seem to be telling us that is it ok to short puts again (although your stop is on today's low in my opinion).

Happy trading everyone!

P.S. This is not an investment advice, it is just a point of vue.

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Article by one of our team member Carolane de Palmas
= at its highest level since February 2016

The US Dollar is at its highest level since February 2016. The higher investor expectations are for a rate hike, the more it strengthens.