By Lawrence G. McMillan
There are several ways to measure an overbought market, and we’ll review many of them in this article. It is common knowledge that overbought markets eventually sell off – sharply, in most cases. But how long can a market remain overbought before it actually begins to decline? As it turns out, an overbought market can exist for quite a while before succumbing. Thus, it is important to wait for the overbought condition to abate and for actual sell signals to occur, before one ventures in on the short side.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — After drifting sideways in a state of virtual somnambulation, the stock market finally broke out to the upside Thursday.
By Lawrence G. McMillan
After drifting sideways in a state of virtual somnambulation, the stock market finally broke out to the upside Thursday. Based solely on the chart breakout, everything looks rosy. However, there are some serious overbought conditions in place, which will eventually have to be dealt with.
As for the $SPX chart itself, the breakout over previous resistance at 1475 means that the 1475 level is now support. Below that, there is still support at at 1450 and 1430.
By Lawrence G. McMillan
After we last published The Option Strategist Newsletter, volatility spiked sharply higher for one day and then plunged. The plunge coincided with the passage of the temporary measure to avert the fiscal cliff, and the stock market exploded to the upside. The resulting spike peak in $VIX was a buy signal for stocks. However, $VIX is now quite low, and other volatility measures have been dragged down as well.
By Lawrence G. McMillan
Despite overbought conditions, the market closed at a new post-2008 high. The breakout on the $SPX chart is not definitive yet, as it has just edged above the 2012 highs. There seems to be a lot of side-lined money, and a close above 1475 would likely draw some (more) of it into the market.
For the record, a pullback towards $SPX 1430 should alleviate those overbought conditions, and may present a buying opportunity. There is also support at 1450 -- this week's lows.
By Lawrence G. McMillan
Thanks to a jittery market and some hijinks from our elected representatives in Washington, DC, the stock market had one of its biggest whipsaws this week. These machinations have created some changes in the technical indicators, but in general, they are back to bullish signals for the most part.
The $SPX chart remains bullish, thanks to the fact that $SPX itself never closed below 1400. Hence, the $SPX chart never broke down.
Equity-only put-call ratios have now rolled back over to buy signals.
By Lawrence G. McMillan
Last year, in discussing the second possible longer-term path for the market, I said “if this scenario were to play out, the market would bottom sometime in early 2012, rally strong into 2013, and then collapse.” I am still sticking with that long-term forecast. We have been talking for years about the similarities between the current market (since the mid-1990's) and the stock market of 1966 to 1983. The primary feature of that past time period was three bear markets.
It’s that time of the year when reviews and forecasts are prevalent. As most of our subscribers know, for our purposes this is an exercise in theory more than practice, for we don’t take positions that last an entire year or longer. In fact, our longest positions are perhaps three months at most – straddle buys, Total put-call ratio buy signals, or other such positions of intermediate-term length.
By Lawrence G. McMillan
The stock market, as measured by the S&P 500 Index ($SPX) has fallen about 40 points since mid-December. Much of this decline has come as the media beats the drum about the fiscal cliff, literally scaring traders into selling. As the decline has taken place, various technical indicators have turned more negative. Our overall take of the $SPX is: continuing closes near or above 1420 are bullish; closes between 1395 and 1420 leave the market in a neutral state, and any close below 1395 turns the $SPX chart bearish.
