T2108 Update – Another Oversold Period Ends As Volatility Continues Pre-Fed Decline

T2108 Status: 23.9% (Ends a 4-day oversold period).

T2107 Status: 23.2%
VIX Status: 22.5
General (Short-term) Trading Call: Bullish
Active T2108 periods: Day #1 over 20% (ends 4-day oversold period), Day #12 under 30%, Day #41 under 40%, Day #81 under 50%, Day #98 under 60%, Day #296 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary

I guess the post-Fed fade of volatility is more like a pre-Fed fade. Closed out some anti-vol trades here. $UVXY puts $SVXY shares. #VIX

— Duru A (@DrDuru) Sep. 15 at 09:06 PM

I guess traders are front-running the typical Fed behavior to calm markets and reduce volatility after making a decision on monetary policy. The resulting moves in the volatility products were so strong that I closed out over half of my “anti-volatility” positions to lock in profits. The rest remains as part of my trade on T2108 oversold conditions. The more volatility declines AHEAD of the Fed meeting, the more wary I get about volatility’s post-Fed behavior. I have adjusted my strategy to fade a volatility surge EITHER before or after the meeting. The “before” case looks very unlikely now.
 

Volatility continues to sink along a steep downtrend from recent intraday highs

The VIX declined by 7.1% while the ProShares Ultra VIX Short-Term Futures (UVXY) plunged 19.5%.

The latest oversold period has ended, but ProShares Short VIX Short-Term Futures (SVXY) still has a lot of ground to recover

Note well how the 200-day moving average (DMA) is now confirmed resistance for the ProShares Ultra VIX Short-Term Futures. It is finally poised to return to its usual behavior: trending ever downward. However, the 50DMA’s upturn suggests UVXY will not go back to its misery without a fight. At the opposite end, the ProShares Short VIX Short-Term Futures has yet to recover lost ground over the last two oversold periods.