The stock market finally halted its straight-down tailspin. A strong rally generated some oversold buy signals which could carry the market back towards its declining 20-day moving average.
The $SPX chart is negative, in a pattern of lower highs and lower lows, and that is what makes it bearish.
Equity-only put-call ratios remains negative. Thursday's rally did not impede their march upward, and when put-call ratios are rising, that is bearish for stocks.
Are you having fun yet? Volatility has returned, and the market is a daily dose of pain and pleasure, to either the bulls or the bears. There are plenty of cross-currents now, and in reality, volatility hasn't even increased all that much (statistically).
Yesterday saw steady rally for nearly the entire day. That had some ramifications beyond merely an oversold bounce. However, it’s what has happened overnight that has been extremely volatile and interesting. First, just after yesterday’s close, Turkey announced that they were intervening on their currency, and S&P futures rallied 13 points from yesterday’s close.
The incessant march upward has run into a bit of a roadblock. The 1850 level on the Standard & Poors 500 Index ($SPX) has proven to be stiff resistance. The failure of the market to clearly break through to new all-time highs has put the bears (temporarily?) in charge. There is most likely going to be a challenge of support at the 1810 level (see Figure 1) soon.
Equity-only put-call ratios have both rolled over to sell signals.
If there is a theme to this market, it's this: it's overbought, but continuing to rise. There is strong support for $SPX at 1810. Moreover, there is now resistance near 1850.
Now for the litany of bullish, but overbought indicators: Equity- only put-call ratios are typical of this group. Both ratios are declining, and that is bullish. In addition, both ratios are at the lowest levels on their chart and that means they're overbought.
Forecasting this market with the Fed doing what they’re doing is really a very inexact chore. However, there are some historic parallels that can be drawn.
Stocks have been fairly dull so far in 2014, but some movement is probably setting up soon. Not much has changed with respect to the indicators that we follow, but let's review them anyway.
The Standard & Poors 500 index ($SPX) has pulled back modestly. As long as the support at 1810 remains intact, the trend is bullish for $SPX.
Equity-only put-call ratios continue to remain near the lower regions of their charts (Figures 2 and 3). This means they are in an overbought state.
The new year started with a thud, as selling pressure that had been building up over the past few days was released. Even after the selling, the $SPX chart is bullish, as long as it remains above 1810.
Equity-only put-call ratios have rolled over to sell signals, from very low (overbought) levels on their charts.
Market breadth had been quite strong -- until January 2nd. Breadth was so negative today that the breadth indicators are just barely clinging to buy signals at this time.
The rally that began last week with the Fed announcing tapering has broken out strongly to new highs. The fact that this occurred during a seasonally bullish period has certainly helped, too. $SPX will remain bullish as long as it holds above support at 1810.
Equity-only put-call ratios are shown Figure 2 & 3. Both are at new lows now, and as such they are both on buy signals (because they are declining) and they are overbought (because they are so low on their charts).
