Always consider hidden risks
SP500 Financials HVol: When the High is Too Low?
July 5 2016 ( From Tradingview)
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Rising Historical Volatility (HVol) on SP500 Financial Sector (SRFI) is most of
the time indicative of a market trend change or acceleration of previous trend.
And falling HVol is usually associated in a bull trend or trendless market.
And rising HVol is usually associated in a bear trend or trendless market.HVOL did reached on February 16 2016 a high level last seen back in September
2015 after we had a strong correction trade pattern in SRFI. SP500 Financial Sector (SRFI) Peaked at 344.90 on July 23rd 2015 and reached a Major Bottom at 262.78 on February 11 2016. But the Historical Volatility on SP500 Financial Sector (SRFI) bottomed only on April 4 2016 and traded in a narrow range til the Brexit announcement. From there, HVol spiked and and Financials did correct tremendously in price. We were at the resistance trendline on June 24 2016, which was rejected.But few of us realize that the the post-Brexit panic was in fact an opportunity for portfolio managers to rebalance at the end of month/quarter from cash and bonds to stocks. Also,the relative flight to quality and liquidity was in strong favor of US Equities. All that kept the Volatility on the high side.But a few things puzzle me:1) IF Brexit was the risk event of the year, why HVol did not spike above the August 2015 correction?(See Chart Below)2) SP500 Financial Sector (SRFI) last triple top is lower each time: May 31,June 24 andJuly 1 2016.
(See Chart below, Top Panel - Ellipses)3) Volume on the proxy XLF ETF on a weekly basis was lower last week on the Brexit event then the correction seen in August 24 2015 week, another weak technical set up. (Not Shown on Chart)4) But the most interesting technical factor is that the strong upward technical correction post Brexit was not enough to break back above the 200 DMA (Day Moving Average), another sign of weaknesses for Financials.
(See Chart below, Top Panel - Greenline - Ellipse)5) The big move post Brexit was not joined by a correction in Bond Prices: the Bond Market is telling us that the fear trade is still there: Bond Markets Have a Message About the Economy That Stock Investors Might Not Want to Hear
All those technical factors makes me believe that the post Brexit rally was build on sand. As Financials remains one of the weakest sector within the SP500 makes me also cautious here.
SP500 Financials HVol: When the High is Too Low? $SPY, $XLF
#Trading #volatility #SP500 #xlf
Top Panel : SP500 Financials ( SRFI - Candles )
SRFI 50 DMA ( Red Line )
SRFI 200 DMA ( Green Line )
Bottom Panel : Historical Volatility ( MA10 - Blue Line )