Are we gripped with fear, with XJO under 4500?

by Raymond Chan

It had been a long downward slide for the XJO in the last 2 months. Since mid April to 17 Jun, the XJO last lost 9.7%. Last Thurday and Friday saw the XJO closed below 4500.

The previous depth for the XJO was in mid March when it closed at the 4528 on the Index. At that low point, the Implied Volatility (IV) of the XJO was at an average of 16.9 whilst the XVI (which is the Australian's VIX or fear gauge) reached a high of 24.46.

As of last Friday, when the XJO went below 4500, both its IV and the XVI have not reached the peak we last seen in mid March. The Friday readings were 15.29 for IV and the XVI was 20.67. Both indicators are not (yet?) as severe as in the depth we saw in mid March.

What are the possible messages from these indicators? That we are not as panicky as the last plunge in mid March or has the current slide not reached its depth?

Whichever view you may take, from the large Open Interests in the July XJO options, it looks like some are protecting portfolios at the 4400 level, in case, we have not seen the depth.

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