By Lawrence G. McMillan
The quiet sleep-walking phase of the market seems to have ended, although that doesn't mean that the bulls have relinquished control. The chart of $SPX has widened out a bit, with support at the weekly low of 1485 and resistance at last week's highs at 1530.
One set of indicators that is bearish is the equity-only put- call ratios. As you can see from Figure 2 and 3, the ratios began to climb last week and are still rising, despite the market's rally this week. A rising put-call ratio is bearish for stocks.
By Lawrence G. McMillan
In December, we presented a strategy for trading the highly leveraged ETFs. At that time, we said that perhaps an option strategy would be a better approach. In this article, we expand on that original research by examining one option strategy (and discarding a few others). This deeper I dig into this subject, though, the more possibilities present themselves.
By Lawrence G. McMillan
$SPX has closed below 1495 and $VIX has closed (way) above 16.21, so those are sell signals on both charts. Moreover, both equity-only put-call ratios have rolled over to sell signals as well. In addition, the CIV sell signal arrived, as the average stock’s CIV has risen to the 23rd percentile (well above the 17th percentile, which is what was required for the sell signal). There are other negatives as well – such as the major negative reversal that the market underwent on Monday (or, if you prefer – a outside down day).
By Lawrence G. McMillan
On Friday, we said that if the bulls could hold onto the opening gains throughout the day, then last week’s action would likely be viewed merely as a very short-term correction. Not only did they hold onto those gains, but they closed prices at the high of the day. Then, Sunday night, the bulls kicked in with another rally, pushing S&P futures up 7 points (or more) overnight. This is strong action, but a close above the highs at 1530 is needed to completely reaffirm that the bulls are back in control.
By Lawrence G. McMillan
Some of the stock market boredom has ended, as a number of traders took the Fed Minutes on Wednesday as a sign to do some selling (the Fed apparently discussed that -- some day -- the easing would have to end; personally, I don't think it will end in the foreseeable futures (years), but that's just my opinion).
$SPX has pulled back to the 1495 support level, which is also where the 20-day moving average currently is. This is a normal pullback, in terms of the $SPX chart. But a close below 1495 would be negative.
By Lawrence G. McMillan
The market continues to sell off today, extending what began shortly after the Fed minutes release yesterday afternoon. This morning's economic numbers provided no relief with unemployment claims and the Philly Fed index numbers coming in worse than expected. The gap lower and open at the high are very weak signs in terms of price action, though it will take a close below $SPX 1495 to confirm a bearish outlook in terms of price alone.
By Lawrence G. McMillan
The three-day weekend was apparently long enough for the bulls to reload and come into the market strongly again yesterday. All of the major averages closed at new highs, and in most cases, 5-1/2 year highs. $SPX was among that group. $VIX and $VXO both traded at their lowest levels since April, 2007. The breadth oscillators expanded strongly, since breadth was very positive. They remain on buy signals, albeit in overbought territory.
By Lawrence G. McMillan
$SPX had been contained within a range of 1495 to 1515 for about two weeks. This week, though, the index has broken out to new highs, above that 1515 level. That is positive.
Technically, that 1495 to 1515 level should provide good support for any pullbacks. In fact, a close below 1495 would be negative, and would probably signal the onset of a more severe correction. Below there, support exists at 1460-1470, the area of the 2012 highs.
By Lawrence G. McMillan
Most professional traders tell novice investors not to chase earnings. I have felt that way throughout my trading career. However, I never actually did any statistical work, nor did I come across any papers of statistical work by others, that actually document this fact. That statistical work – or at least some of it – has now been done by us, and the results are presented in this article.
By Lawrence G. McMillan
Currently, option implied volatilities are near extreme lows, by many measures. We have seen that VIX got down to nearly 12. It has been below 10 in the past, though, so it is not at historically low levels. However, many stocks have options that have never been cheaper. For example, IBM’s composite implied volatility (VIX) has been hovering near 10 lately. It has never had cheaper options in the nearly 40 years that listed options have been traded on the stock.
