Now that the Standard & Poors 500 Index ($SPX) has made new intraday and closing highs, joining the other major indices (except NASDAQ), there is once again no overhead resistance. However, increasingly overbought conditions may combine to slow the rally at least temporarily. $SPX has support just above 1670 (last week's lows), then again at 1650 (the June highs), and then at 1625 or so, where it traded for a time early this month.
The "interpreters" are in charge of this market. They are the people who interpret what they think Bernanke said, and then they act accordingly in the stock market. Frankly, I am in the camp that Bernanke has not changed his message at all -- he has consistently said that QE will remain in force until economic conditions improve (and there is no improvement -- at least in the indicators he is watching).
What happened yesterday is relatively unimportant. It’s what’s happening tonight that is the big story. Yesterday, the market temporized while waiting for the FOMC minutes, and then it didn’t do much after the minutes were released, either. However, Bernanke spoke after the close, and the market is interpreting his comments as indicative of the fact that QE is just fine, and tapering won’t occur anytime soon.
On Monday, stocks rallied early, and held onto the gains throughout the remainder of the day. Overnight, S&P futures were up another 6 points in Globex trading. In other words, the upside momentum is strong and the bears seem to have disappeared. Support is at 1615.
Ever since the broad market bounced just over a week ago from the 1560 level, the bulls have been trying to gain complete control. So far, they have been stymied. $SPX has not broken out over resistance, nor has $VIX broken its uptrend. However, one other important indicator has turned bullish -- the put-call ratio.
$SPX has topped out in the 1620-1630 range for several days. A close above 1630 would be positive.
Today is a half-day, holiday-shortened session, and Friday will likely be a very low-volume affair. However, that doesn’t mean that prices can’t be volatile. In the bear market of 2002, the bulls engineered a 300-point Dow rally out of nowhere on July 5th, only to see the bears wipe it out completely in a few days after that. But if you have positions, these big moves can be meaningful.
The speed with which $SPX fell -- 63 points in two days -- meant that it sliced right through support areas without stopping. There is support at 1560 -- this week's low on $SPX. Furthermore, there is important support below there, at 1540, from a series of lows back in March and April.
Equity-only put-call ratios have not given confirmed buy signals yet. They remain on sell signals.
(Barron's) - Options can be great contrary indicators.
Puts and calls are very versatile. Strategically, they can be used for leveraged speculation by some, while providing protection, income, or both, to others. Their prices and volume also can produce information advantageous for an investor or trader, even if that person doesn't actually buy or sell options.
The initial selling on Wednesday afternoon was probably just some profit-taking by traders who'd bought heavily on Monday and Tuesday. But then the selling gathered momentum.
After the FOMC meeting announcement Wednesday, the stock market fell sharply. All those people who had bought earlier – on Monday and Tuesday – had apparently become profit-takers by late Wednesday. Even though $SPX probed slightly above 1650 in the last two days, this was not an upside breakout. In fact, it just pushed the upper resistance area slightly higher, but $SPX still remains within the general 1600-1650 trading range.
