By Lawrence G. McMillan
The stock market has now pulled back for five straight days. This came after a strong upside breakout.
On the surface, it is disappointing that the upside breakout momentum faded and gave way to this decline. However, the market was very overbought a week ago, and it was inevitable that a decline was to take place to alleviate that overbought condition. It is our viewpoint that this pullback is a healthy one, and it will lead to higher prices soon — certainly over the intermediate term.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — Three week ago, we wrote that strong buy signals were in place . For the most part, those buy signals remain in place today. Therefore we continue to look for higher prices ahead.
By Lawrence G. McMillan
The stock market, as measured by the Standard & Poor’s 500 Index failed to hold on to the upside breakout of last week and is now back in the trading range that had previously contained the market for a month or so.
The range is a bit wide now, with resistance at the June highs of 1,360 and major support at the June lows of 1,270. There is also support in the 1,305-1,310 area. All three are marked on the chart below...
By Lawrence G. McMillan
At the current time, there are arguably more extreme sentiment readings in the “macro” markets than at any time in recent memory. Macro markets, as defined by economist Robert Shiller in a 1993 paper, are large international markets trading in the form of futures contracts. In a more modern sense, these may also be trading in the form of ETFs. These would include currencies, stock market indices, and most major futures contracts, such as Crude Oil, Gold, and so forth.
By Lawrence G. McMillan
The stock market has virtually alternated strong up and down days of late, without much net change. This has created a trading range, within which we’ve seen a good deal of improvement from several of our technical indicators. Even so, the market must confirm these indicators’ buy signals with an upside breakout. Failure to do so would essentially negate those signals.
By Lawrence G. McMillan
After some relatively heavy, but orderly, selling in the past few weeks, oversold conditions finally reached levels that spawned today’s sharp oversold rally. But oversold rallies, while often unexpectedly strong, are generally short-lived affairs.
Is that going to be the case again this time, or is the bottom in place? It’s too early to answer that question, but we’ll lay out the criteria as we see them.
By Lawrence G. McMillan
Despite a rather severe oversold condition, there have been no actual confirmed buy signals issued yet. This oversold condition has persisted for the past couple of weeks, spurring modest rallies, but all that seems to have done is to ease the oversold condition a bit and make way for the next wave of selling, such as we saw today.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — One thing that all traders figure out sooner or later is that an oversold market can continue to decline — sometimes at an ever-increasing pace. Eventually, of course, traders are “sold out,” and the market rallies. But even though such an oversold rally might be swift and of considerable size, it is often short-lived.
By Lawrence G. McMillan
The decline in $SPX this month has been swift, but surprisingly orderly. For example, the 20-day historical volatility of SPX is only 14%, which is extremely low after a decline of the magnitude that we have recently seen.
See the Market Insight column for further information on the large discrepancy between implied and actual volatility.
By Lawrence G. McMillan
The stock market has broken down through several support areas, to the point where it is now below the important support at 1,340 on the Standard & Poors 500 Index. This has turned the overall picture negative, but it has also created some extreme oversold conditions.
It is common knowledge that a bear market can continue to decline, even while oversold conditions exist. However, they eventually give rise to very sharp, but generally short-term rallies.
