Monday, January 23, 2017

Headlines Selling Fear Again #USStocks

Fear driven headlines, content designed to generate clicks that support ad revenue, suggest a massive stock market selloff lies ahead due to rising demand for call options on the CBOE VIX contract. The message of the market, however, is rarely distilled to a small group of market relationships let alone put and call activity on the CBOE VIX contract.

Subscribers recognize the message of the market for US Stocks as consolidation (C/P) with a bull phase of sentiment since November 2016. While selloffs can materializes during these periods, they're usually not massive.  The observation of surprisingly strong market breadth during seasonal weakness supports this tendency.

Also, anyone screaming sell stocks because the VIX is dangerously low in January neglects to show you that it can go lower as stocks enter seasonal strength (chart 1 and 2).

Chart 1

Chart 2

Headline: Investors are bracing for a massive stock-market selloff

If options traders are correct, stocks are in for a wild ride in February.

Demand for one-month call options tied to the CBOE Volatility Index, a popular gauge of stock-market volatility, has spiked in the past week. The increased demand suggests that some investors are bracing for selloff following the inauguration of President-elect Donald Trump.



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