By Lawrence G. McMillan
The market responded to a number of factors on Monday to put together one of the strongest days of the year. Perhaps too strong (for example, advancing volume on the NYSE was 34 times that of declining volume!). It was yet another "90% up day" and now there have been three such days without an intervening "90% down day." Odds are due for a short-term pullback. However, once that gets out of the way, we would expect higher prices in line with the improving technical indicators that we mentioned yesterday.
By Lawrence G. McMillan
The S&P 500 Index ($SPX) has established 1120 as a support area, but it remains negative in that it is trending downward.
Equity-only put-call ratios are still rising on their charts, meaning they are still on sell signals. However, the heights they have reached means that these indicators are extremely oversold.
Market breadth has been very one-sided, as massive numbers of traders are either bullish or bearish at the same time, it seems. Breadth conditions are currently neutral.
By Lawrence G. McMillan
Vertical skews appear in option prices during times of panic and in futures prices in terms of euphoria. Since we have been experiencing a lot of both lately, we have gotten some requests from traders asking how to play these skewed situations without using naked options. This is a subject that we have covered in the past, but it might be a good time to review it, considering current market conditions.
By Lawrence G. McMillan
The rally that was underway a week ago ended abruptly, and the Standard & Poor’s 500 Index traded back down to its lows at 1,120. After a few days of testing that area, during which the index closed near that 1,120 level each day, the market has rallied. This rally was initially supported by extremely oversold conditions, but has begun to garner some other buy signals as well.
Let’s review the indicators.
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.
By Lawrence G. McMillan
The $SPX chart is perhaps the most negative technical indicator of all. The pattern of lower highs and lower lows persists. How far can this next down leg carry? 1100 is the intraday low from last week; 1077 is the overnight low for the futures; and some technical targets suggest a decline to the 1040-1060 area, which was support from the summer of 2010.
By Lawrence G. McMillan
The panic of a week ago has subsided, but the market remains nervous and volatile — not as volatile as last week, but far more volatile than it has been in the past year or so. The oversold conditions, massive as they were, have spurred a rally that is still in progress. However, upside progress has stalled, and the bulls and the bears are locked in combat at or near current levels.
By Lawrence G. McMillan
The market opened stronger, after some economic data was released, and that rally lasted for less than a half hour. Since then, its been a slow decline, but a large one, and the support at 1180 is in danger of giving way. This would not be good. Specifically, a close below 1178 would spell then official end of this short-term oversold rally that has been underway for the last few days. Thus, the $SPX chart remains in a negative downtrend.
By Lawrence G. McMillan
Monday was a monster up day – yet another 90% up day. That’s two 90% up days in the last three trading days, which means that the market is short-term overbought and due for a correction of at least one day (S&P futures are down about 10 points in Globex trading tonight). That now makes seven “90% days” – either up or down – in the last 10 trading days.
