This market is not out of the woods yet

By Lawrence G. McMillan

Prices were all over the map on Friday, as traders tried to lessen their risk heading into a long 3-day weekend.  In the end, $SPX was little changed.  Over the weekend, there have been two night sessions in the S&P futures, without benefit of NYSE trading.  On Sunday night, the futures opened higher and rose about 14 points.  From there, they fell the rest of that session and then fell again last night, dropping 38 points from those highs.  They have recovered a bit now, and stand at about –15 from Friday’s close.  

$SPX managed to rise far enough to touch its declining 20-day moving average on Friday.  That was about the high of the day as prices reversed downward from there.  It certainly seems like that area will now be resistance.  Clearly, a number of traders were waiting for the 20-day moving average to be touched – as a chance to lighten up on long positions, either older ones or ones that had just been acquired in the last week’s strong rise. 

We have mentioned many times that an oversold rally often peters out at or just above the declining 20-day moving average.  So far, this one has, too.  As a result, the $SPX chart still has a negative look to it.  The moving averages are trending lower for now.  It would take a close above the 20-day MA far enough for that avenge to begin to curl upward, in order for the $SPX chart to extract itself from the bearish status that it is currently in.

Equity-only put-call ratios continue to push higher, as the numbers coming off from 21 trading days ago are quite small in comparison to those going on now.  So, even though Friday’s put buying wasn’t tremendous, it was enough to keep these ratios on the rise.  As a result, they remain on sell signals, although it should be noted that the weighted ratio is getting into heavily oversold territory.

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