Non-Standard Deviations

Options strategist Larry McMillan points out on Marketwatch that the S&P 500 is nearly 17 standard deviations from its 200-day moving average.

"Currently, SPX is trading nearly 17 standard deviations above its 200-day moving average. That is an extremely large number and clearly indicates an overbought condition. Back in May, SPX traded nearly 20 standard deviations above the 200-day moving average before pulling back over 120 SPX points in the May-June correction. So, SPX could still go higher before an overbought correction occurred, but is definitely in overbought territory." (emphasis added)

The S&P slightly exceeded the 1696 spot that was of interest to me, and still retains a bullish pattern. There is a higher target of Fib confluence at the 1709-1712 area if the market wants it, but it may not. There is a rising wedge pattern that looks like 1701-1703 could cap it off. 1678.12 is still the stop for longs.

The VIX has fallen through a "trap door" whereby it has broken through one multi-month trend line probably in search of testing another one around 10. While I will hold my current VIX 18 call position as insurance, I'm not adding to it unless there is some sort of massive reversal in the market.

I still like the idea of a crack up into August options expiration. Should the VIX get to 10, I will load up on 14 strike calls. A 1987-style event could easily send the VIX to 80 or more. Sounds crazy, huh.

This weekend while bombing through the Maine outback, I noticed not one but two tractor dealerships carrying Mahindra tractors from India. This made me think of the Peter Lynch method of stock picking. In that I'm a huge long-term bull on India (I think it will eventually outpace China), I will add Mahindra to my watch list. Its ADR ticker symbol is MOM.

In other news, the Telegraph reports that Bentley is building a luxury SUV. Socionomically, this constitutes a social mood alert and cautions that conditions for a potential top may be building. I don't trade on these, I just observe. But it's very interesting that such news appears when the S&P is so extended.