By Lawrence G. McMillan
Friday was another boring market day, with $SPX in a 6-point range. The reality of the situation seems to have struck $VIX traders, though, as that index lost another 8% on Friday. The downward trend of $VIX is bullish for stocks, but this is beginning to look a big overdone. I would have to say that $VIX at 18 (and $VXO below 17) is certainly in overbought territory.
Meanwhile, breadth was modestly positive, leaving both breadth oscillators above +550 and in deeply overbought territory as well. Equity-only put-call ratios continue to fall, and – like a falling $VIX – that is bullish for stocks in the intermediate-term. However, even here the call buying has been heavy and the ratios have been falling so rapidly that they have attained the levels of last August, which means that in overbought territory, too.
Even $SPX itself is overbought, if you consider that it is 3 standard deviations above its 20-day moving average, and that is not generally a healthy place to be, for bulls.
In summary, the negative seasonality (what negative seasonality?, you might rightfully ask) is still in effect for this week. It certainly seems that at least a short-term correction is due almost immediately. If you do not already own the QQQ puts, I would suggest buying some this morning.
This market commentary was taken from this morning's edition of The Daily Volume Alerts.
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