By Lawrence G. McMillan
With the Dow ($DJX) making new all-time highs, and the Standard & Poors 500 Index ($SPX) simultaneously making new post-2007 highs, it certainly seems that higher prices lie ahead.
Both of the equity-only put-call ratios are somewhat distorted. That is because of all the put buying that has been taking place as protection for stock portfolios. At the current time, they are moving lower and thus appear to be back on buy signals.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — With the Dow Jones Industrial Average making new all-time highs yesterday, and the Standard & Poor’s 500 Index simultaneously making new post-2007 highs, it certainly seems that higher prices lie ahead.
Despite this price momentum, not everything is as bullish as one might suspect. We’ll look at the various indicators in depth to see how they line up.
By Lawrence G. McMillan
The quiet sleep-walking phase of the market seems to have ended, although that doesn't mean that the bulls have relinquished control. The chart of $SPX has widened out a bit, with support at the weekly low of 1485 and resistance at last week's highs at 1530.
One set of indicators that is bearish is the equity-only put- call ratios. As you can see from Figure 2 and 3, the ratios began to climb last week and are still rising, despite the market's rally this week. A rising put-call ratio is bearish for stocks.
By Lawrence G. McMillan
$SPX has closed below 1495 and $VIX has closed (way) above 16.21, so those are sell signals on both charts. Moreover, both equity-only put-call ratios have rolled over to sell signals as well. In addition, the CIV sell signal arrived, as the average stock’s CIV has risen to the 23rd percentile (well above the 17th percentile, which is what was required for the sell signal). There are other negatives as well – such as the major negative reversal that the market underwent on Monday (or, if you prefer – a outside down day).
By Lawrence G. McMillan
Some of the stock market boredom has ended, as a number of traders took the Fed Minutes on Wednesday as a sign to do some selling (the Fed apparently discussed that -- some day -- the easing would have to end; personally, I don't think it will end in the foreseeable futures (years), but that's just my opinion).
$SPX has pulled back to the 1495 support level, which is also where the 20-day moving average currently is. This is a normal pullback, in terms of the $SPX chart. But a close below 1495 would be negative.
By Lawrence G. McMillan
The three-day weekend was apparently long enough for the bulls to reload and come into the market strongly again yesterday. All of the major averages closed at new highs, and in most cases, 5-1/2 year highs. $SPX was among that group. $VIX and $VXO both traded at their lowest levels since April, 2007. The breadth oscillators expanded strongly, since breadth was very positive. They remain on buy signals, albeit in overbought territory.
By Lawrence G. McMillan
$SPX had been contained within a range of 1495 to 1515 for about two weeks. This week, though, the index has broken out to new highs, above that 1515 level. That is positive.
Technically, that 1495 to 1515 level should provide good support for any pullbacks. In fact, a close below 1495 would be negative, and would probably signal the onset of a more severe correction. Below there, support exists at 1460-1470, the area of the 2012 highs.
By Lawrence G. McMillan
Currently, option implied volatilities are near extreme lows, by many measures. We have seen that VIX got down to nearly 12. It has been below 10 in the past, though, so it is not at historically low levels. However, many stocks have options that have never been cheaper. For example, IBM’s composite implied volatility (VIX) has been hovering near 10 lately. It has never had cheaper options in the nearly 40 years that listed options have been traded on the stock.
By Lawrence G. McMillan
$SPX has bounced back and forth in the 1495 to 1515 range for nearly two weeks. A breakout in either direction would likely be enough to spur further momentum in the direction of the breakout.
Equity-only put-call ratios continue to meander sideways. As such, they are not particularly useful indicators right now.
Market breadth has been positive enough to keep the breadth oscillators on buy signals. They are also slightly overbought.
By Lawrence G. McMillan
The “game” of stock market predicting holds appeal for many because one who can do it seems powerful and intelligent. Everyone has his favorite indicators, analysis techniques, or “black box” trading systems. But can the market really be predicted? And if it can’t, what does that say about the time spent trying to predict it? The answers to these questions are not clear, and even if one were to prove that the market can’t be predicted, most traders would refuse to believe it anyway.
