The speed with which $SPX fell -- 63 points in two days -- meant that it sliced right through support areas without stopping. There is support at 1560 -- this week's low on $SPX. Furthermore, there is important support below there, at 1540, from a series of lows back in March and April.
Equity-only put-call ratios have not given confirmed buy signals yet. They remain on sell signals.
With the stock market collapsing recently, option implied volatility spiked higher in a large number of markets. Of course, actual (historical) volatility has increased as well, but it is implied volatility that reflects more of the panic mood of the public, and thus is the one that can be used as a contrary indicator.
All futures contracts are limited in the amount by which their price can change in any one day. The exchange where the future is traded determines the size of that daily limit. The greatest fear that any futures trader has is that he will get caught on the wrong side of a prolonged limit move and therefore not be able to get out of his position. If this happens, huge losses could occur.
(Barron's) - Options can be great contrary indicators.
Puts and calls are very versatile. Strategically, they can be used for leveraged speculation by some, while providing protection, income, or both, to others. Their prices and volume also can produce information advantageous for an investor or trader, even if that person doesn't actually buy or sell options.
The initial selling on Wednesday afternoon was probably just some profit-taking by traders who'd bought heavily on Monday and Tuesday. But then the selling gathered momentum.
After the FOMC meeting announcement Wednesday, the stock market fell sharply. All those people who had bought earlier – on Monday and Tuesday – had apparently become profit-takers by late Wednesday. Even though $SPX probed slightly above 1650 in the last two days, this was not an upside breakout. In fact, it just pushed the upper resistance area slightly higher, but $SPX still remains within the general 1600-1650 trading range.
The stock market has found itself under increasing pressure again this week, and once again seems to have found support at 1600. It is also clear that 1650 is resistance and $SPX is trading wildly and with great volatility in between those two levels.
Equity-only put-call ratios have remained solidly on sell signals throughout. Even on days when the market has rallied, there has been considerable put buying.
Market breadth indicators are currently mixed.
The feature article discusses the fact that stocks, bonds, and the U.S. Dollar have all been declining together. A hedged position is recommended in Bonds vs. the Dollar.
The $VIX spike peak buy signal was stopped out, but another may be setting up (page 4).
There are times when stocks and bonds move in the same direction, and times when they move in opposite direction. However, the U.S. dollar almost always moves opposite to bonds. Yet, in the last few weeks – ever since stocks topped out – all three markets are under pressure. This is creating a very unusual situation, both in terms of sentiment and probably in terms of economics, as well.
The failure of the market to follow through Monday on Thursday and Friday’s strong gains resulted in a pretty nasty day on Tuesday. Breadth was terrible, volatility rose sharply, and $SPX retreated to the support near 1620. Overnight, S&P futures are up about 7 points, so it appears that the 1620-1650 range is containing prices for the near term. A breakout from there could generate some momentum in the direction of the breakout.
