By Lawrence G. McMillan
After some relatively heavy, but orderly, selling in the past few weeks, oversold conditions finally reached levels that spawned a sharp oversold rally. But oversold rallies, while often unexpectedly strong, are generally short-lived affairs. There is certainly a good chance that this is the case again this time.
$SPX was able to rally to its declining 20-day moving average. There is further resistance at 1340.
By Lawrence G. McMillan
These days, there are more and more volatility indices and futures than ever. One can observe the same sorts of things about them that we do with $VIX futures – in particular, the futures premium and the term structure. We thought it would be an interesting exercise to see how these other markets’ futures constructs compare to that of $VIX. The $VIX construct, for a long time (see chart, page 12) has been that of large futures premiums and a steep upward slope to the term structure.
By Lawrence G. McMillan
The market just cannot get a rally together that is strong enough to erase the oversold conditions. There is now resitance at 1335, where the rally failed this week.
Equity-only put-call ratios continue to plow higher on their charts. They remain on sell signals.
Market breadth has been quite negative, and that is one of the major oversold conditions.
Volatility indices ($VIX and $VXO) have remained stubbornly high. As long as $VIX is above 21, that is bearish for stocks.
By Lawrence G. McMillan
As often happens on the first day of trading after a three-day weekend, the market is buffeted by cross-current, so there are several moves. Initially, the market was strong yesterday, topping out almost exactly at $SPX 1335. Then selling drove the index down about 16 points, before a late rally took it back to near the highs. Even though intraday volatility increased, actual (realized) volatility has not. Tonight, S&P futures were down about 14 points after more negative news out of Europe.
By Lawrence G. McMillan
The massive oversold condition that existed at the end of last week has spurred a rally this week. when the market is as oversold as it got last week, it usually rallies back slightly beyond its 20-day moving average. That moving average is currently at 1350.
The equity-only put-call ratios remain on sell signals.
Breadth has been slightly positive this week, but the breadth indicators continue to remain on sell signals and are still in oversold territory.
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.
On May 23rd, the CBOE will be listing futures on the Nasdaq-100 Volatility Index with the symbol /VN. The Nasdaq VIX futures will be similar to the regular S&P $VIX futures in that they will be "based on the real-time prices of options on the Nasdaq-100 Index," will have a multiplier of $1,000, will trade from 8:30 am - 3:15 pm Chicago Time, and have the same settlement date as the /VX futures ("The Wednesday that is 30 days prior to the third Friday of the calendar month immediately following the month in which the contract expires ").
By Lawrence G. McMillan
Is this current market decline the harbinger of a new bearish market phase, or just a pause in the general bull market that was launched in March, 2009, with a couple of healthy bumps along the way? One answer to that question can be observed in the behavior of the $VIX futures. The stock market’s decline in the past two weeks has caused the $VIX derivatives to lose some of the bullishness that they have been displaying since last November. Not only have the futures lost premium, but the term structure has begun to flatten as well.
By Lawrence G. McMillan
The $SPX chart has turned bearish, with the breaking of the 1340 support level. However, it is oversold in that it is more than 4 standard deviations below its 20-day moving average, which is currently at about 1370.
Equity-only put-call ratios remain on sell signals, but they are so high on their charts that they are in an oversold state, too.
The breadth indicators have now reached extremely oversold levels, but they are also on sell signals.
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.
