Monday, July 30, 2007

Qs bounce; VIX fades: will it hold?

The Qs performed as expected today. After an inital pop at the open, the Qs retreated to the 50 day SMA and then inched up for the rest of the day.
The VIX also performed as expected. After the close high, wide range bar Friday, the VIX today showed a close low, wide range bar, falling back through the upper bollinger band.
Premium decay today was was exceptionally high, with both puts and calls losing value as the market modulated. I"m not sure whether this was a strictly a function of the volatility decline in the VIX or gaming by the market makers, but it was dramatic (an frustrating).
The current pattern typically shows another dip before any meaningful further move up (big big??) and based on past VIX behavior the best guesstimate is up Tuesday, then down Wednesday for the Qs. I typically swing trade this Qs pattern based on a 3 bar/7 bar DSMA crossover. The current chart shows little inkling for such a crossover and I will hold on any new longs until such a crossover occurs.

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