By Lawrence G. McMillan
The market action this week has been quite bearish and, frankly, quite out of character in terms of the indicators, but it may also be a rather severe reaction to the overbought conditions that had built up.
The S&P 500 Index ($SPX) had strong upside momentum a week ago, but ran into resistance very near the April highs.
Equity-only put-call ratios are bullish and have remained bullish even during this week's decline.
By Lawrence G. McMillan
The stock market continued its bullish explosion this week. $SPX broke through its previous down trend line last Friday, and has now overcome the late-May high. All that remains is a test of the post-2009 highs at 1370.
Equity-only put-call ratios turned bullish when they peaked and began to fall. These are intermediate-term buy signals.
Market breadth has been very strong during the rally. Breadth indicators remain on buy signals, but are now very overbought.
By Lawrence G. Mcmillan
Friday wound up one of the strongest weeks in stock market history. It was a perfect storm of events, topped off by a pre-holiday, thin trading session on the first day of the month. There are now some fairly extreme overbought conditions in the breadth oscillators. However, as we’ve explained before, these are actually bullish conditions for the new upside breakout. Of course, in the very short term, the market needs to slow down a bit and regroup.
By Lawrence G. McMillan
A huge stock market rally developed this week, due to a number of factors. The S&P500 Index ($SPX) entered the week in a downtrend. Depending on how you look at things, it might still be in a downtrend (see Figure 1, blue line). But it did overcome resistance at 1300 (last week's high) and 1310, so that is a positive development.
Put-call ratios have reached extreme levels, but have stubbornly been refusing to give confirmed buy signals.
By Lawrence G. McMillan
If the current rally levels hold, it will improve the $SPX chart to neutral, removing the "bearish" designation that we have had on it for weeks. In fact, if $SPX can close above 1310, we would upgrade our classification of the chart to bullish.
The rally is being backed by technicals that are turning bullish, too. $VIX is now at 17.41, below the 17.70 level that we said would constitute a buy signal for that index, too. As with $SPX, this move in $VIX breaks the bearish trend that was in place.
Weekly put option sales have been added to the analyses in The Strategy Zone (SZ) and in the Option Work Bench (OWB).
Subscribers to The Daily Strategist that follow our weekly SPY sales, are up +18% in five months, in the ongoing position that we are running in that newsletter.
By Lawrence G. McMillan
Oversold conditions had built up over the past couple of weeks, and they finally spurred a decent rally -- mostly all in one day this week (Tuesday).
The chart of $SPX itself remains in a bearish downtrend, with the series of lower highs and lower lows.
Equity-only put-call ratios raced higher over the past two weeks, reaching oversold status as the market continued to decline. Then, when the rally unfolded, the standard ratio rolled over to a buy signal, while the weighted ratio topped out as well.
By Lawrence G. McMillan
The following was excerpted from the market commentary in this morning's Daily Volume Alerts Newsletter, which is sent out each morning before the market opens.
By Lawrence G. McMillan
After a shaky overnight session, when S&P futures traded down 10 points at one time, and some opening jitters today (when $VIX traded above 23), the market has settled down and rallied. The rally is another one of those weak, rather pathetic affairs, but that apparently is all that the oversold conditions can generate at this time.
We continue to see the intermediate-term indicators in a negative state, while short-term oversold conditions increase.
By Lawrence G. McMillan
The market has had a rough week as the dominant bearish traits of this market have emerged. A couple of oversold rallies have been attempted, but they have been unusually weak. The chart of $SPX is in a downtrend and that is the major trademark of this market.
The equity-only put-call ratios are both on sell signals. They are continuing to rise rapidly, and thus might be considered oversold, but they will be bearish until they roll over and begin to trend downward.
