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Home » Blog » 2011 » 08 » Oversold rally in effect
By Lawrence G. McMillan

The rally that could have sprung up at any time – given the oversold conditions that existed – is taking place.  As we mentioned in the Volatility Report (overnight), a key factor was the CBOE’s Equity-only Put-call ratio exceeding 1.00 on Friday.  That is rare and usually precedes a strong (but short-lived) rally within a day or two.  It other indicators don’t chime in today, this move may more or less be the extent of that signal.

The next best chance for a continuation of this rally would be a spike peak reversal buy signal in $VIX, which could occur at today’s close.  $VIX has collapsed this afternoon, now trading below 37, and that would constitute a buy signal from that indicator as well.  Any close below 37 would certainly confirm that buy signal.  A $VIX spike peak buy signal is also a short-term signal, but may last longer than that.  There was such a signal a week ago, and $SPX rallied for about 100 points over four days or so...

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