What the SPX & VIX Are Telling Us Now

01/03/2013 7:00 am EST


Joe Kinahan

Chief Market Strategist, TD Ameritrade

JJ Kinahan talks about the S&P 500 and the VIX and what traders should monitor through the year-end.

I’m here with JJ Kinahan.  He’s my trusted source on the S&P and volatility so tell me, what’s the news for S&P and volatility right now?

Well, you know, we see the S&P 500 right now trading right about 1350 as we speak.  If we think back, it’s mid-November right now.  If we think back to late October, many people were talking about it making a run at 1500 by the end of the year so I think we seem to be at an area where there does seem to be some stability.  There is a good chance for it to bounce.  Again, when we were up a bit higher, we saw many people buying this 1500 call speculating that we would go through there.  Obviously we’re not seeing that as much.  I do think there was a belief though that at least this 1425 level we may be able to get to by the end of the year.  Obviously there’s a lot of news after the election with the fiscal cliff and things that are going to influence it. 

What I find very interesting is the VIX currently trading at 18 but what I really find interesting is if I look at where the VIX curve tells me we’re going to trade out into January, we don’t see it being really steep or a big gap between months.  Often that’s what you see when there’s an expectation that we’re going to go much lower and that there’s going to be some bad news pending.  We’re not seeing it.  There seems to be an expectation built into the market that the fiscal cliff may be solved and with that, I think you would see the S&Ps naturally jump.  If that does happen, it’s one of those things where it’s like the movie where they say it’s quiet.  Ooh, it’s too quiet so it’s very interesting to see right now.

Well, what are some signs that traders can look for and look at that would let them know that we’re not just looking at a leveling off or a period of stabilization but rather maybe a jump in the market?

Well, I think the biggest thing you have to look to is some of the biggest names on stocks and see how they’re performing.  Look at what a GE is doing.  Obviously you always have to look at Apple although Apple’s trudging around a little bit right now.  They have their own issues.  We see IBM, Procter & Gamble.  There may be some of these, the Proctor Gambles of the world may not be exciting stories but look at how they’re reacting.  Look at what’s going on right now.  All those stocks that I just mentioned also seem to have found some level of stability and in a sector, the biggest sector I think you have to look at is the financials.  We’ve always found it very difficult to rally without the financials being one of the top two sectors involved so that’s the one I would certainly keep my eye on until the end of the year.

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