1/8 Watchlist: Volatility's Decline; DTV, PEP, SMH, SPLS, UNG on the scan

Volatility (VIX) among blue chips has declined by 4.6% from the open today. Since the decline began on Jan. 4, the first trading day of the year, the index has declined by 15.2%. Fear, where is thy sting?

The VIX, also called the "fear index", measures volatility of the S&P 500 stocks. When the VIX is down, the theory goes, traders are less fearful of losing their money. Risk premiums shrink.

What that means for us is that it gets hard to make money in some respects. Option premiums are lower. Bid-ask spreads are narrower. I find fewer directional trades.

Risk is the trader's friend. Without risk there is no profit. Risk is the mother of success.

So, with less volatility, indicators across  the board are fairly quiet. No new signals. No big moves.

The VIX, now trading at about 18.40, is close to support that produced bounces in early 2008, before the collapse of capitalist finance, and late 2007. Before that, to get some perspective, the VIX regularly traded below 15. So arguably the last year was an anomaly, and volatility is returning to the norm. That will have large implications about the tactics we use in trading options.

Nothing new since the Morningline on currencies or holdings.

Of interest among the high-volume . . .

. . . exchange-traded funds:

• UNG shows a pps bear signal, with the macd just below the zero line and the stochastic between the lines and moving down. It's the fifth pps whipsaw in 10 trading days of mainly sideways price action. The longer-term trend of the etf is down.
• SMH, the semiconductors etf. I closed my bullish January options position on a bear signal. Today it  is now showing a bull signal. I would want to see a price break above 28.70 or so before I would consider reentering.

... corporate shares:

• PEP is showing a pps bear signal, unconfirmed by the macd with the stochastic heading toward the 20-line. The stock established what appears to be a new downtrend (lower highs, lower lows) at the start of the year. It is trading around 60.58, and support is 58.69, which is 3% potential on a bear position. That support is pretty strong, however, with lows in September and December 2009, and highs in August 2009 and November 2008, and then further significant pauses at this level stretching back to 2007. (Disclosure: I own a calendar spread on Pepsi as part of my traded based on an advisory service, which I don't cover on this weblog.)
  
• SPLS has pushed up further follwoing a pps bull signal yesterday and with the macd and stochastic heading toward bull territory. The stock has trended upward since last July. Trading at 25.30 or so, it is about at resistance.resistancepierced near-term resistance today. The high set in 2006 was 28, so the ultimate potential is 10.7%, unless it pierces that level and goes blue sky. There are all sorts of resistance levels in between, however.
• DTV shows a pps bull signal, not confirmed by the macd or stochastic. The stock has been in an uptrend since last June and at 34.05 is trading around near-term resistance. If it continues to rise it will be in blue-sky territory and I'll be very, very interested. 

Topics: DirecTv direct tv satellite, Pepsi soft drinks soda, semiconductors, natural gas.