Join Larry McMillan as he discusses the current state of the stock market on July 10, 2023.
Stocks charged ahead to a new yearly high at the end of the second quarter, but have faltered a bit since then. A rather sharp pullback occurred yesterday, based on fears that the central banks around the world are not done raising interest rates. That's news? I guess it was to those who sold yesterday. In any case, that pullback closed a couple of upside gaps on the $SPX chart. However, it has left a potentially important island reversal on the $SPX chart now (circled area on the chart in Figure 1).
The correction that took place following June option expiration (the 3rd Friday) lasted just about a week, and prices have rallied since then. That decline bottomed out at about 4330 very nearly the peak of last August. So that is the first support level now. There is further support at 4200, the level which had represented resistance for so long. Any pullbacks should find ample support there, but if $SPX were to fall back below 4200, that would represent a very bearish development.
In a rather stunning move, Barclay’s Bank PLC, the underwriter of the iPath series of ETNs1, announced that it is closing 21 of them. The majority of the notes set to be redeemed are derivatives-based and track commodities. Many of them carried a “Bloomberg” designation in their title. Unfortunately, many of these that are closing are the only ETPs available in the US to speculate on specific commodities, such as orange juice or cotton. In our put-call ratio positions, we have often used the options on these ETNs instead of buying commodity futures options. The largest ETN being closing is the Copper ETN (JJC), with about $71 million in assets.
The broad stock market confirmed the breakout over 4200, with only a minor consolidation. Now it is attempting to break out above 4300, which is the next resistance level. If that is accomplished, then there should be somewhat clear sailing overhead for a while.
Equity-only put-call ratios remain bullish, as they continue to fall. They are in overbought territory, but "overbought does not mean sell."
The trading range environment for $SPX is still in place. The horizontal lines on the chart in Figure 1 depict the extent of the three most prominent ranges that are in place right now. Most recently, the tightest range is 4100-4200. A slightly wider range, 4050-4200, exists if one extends back into April. Then the larger range, roughly 3800-4200 encompasses all of 2023 and even the last part of 2022. Of course, 4200 is the top of all of these ranges. One can be sure that aggressive traders have been and will continue to short the market at 4200. If it eventually breaks out to the upside, there will likely be some heavy short covering to accompany that move.
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Join Larry McMillan as he discusses the current state of the stock market on May 22, 2023.
Thomas Peterffy is well-know for founding the computerized trading firm Timber Hill and also for founding Interactive Brokers. Thomas recently was the Keynote Speaker at the May 2023 SIFMA meeting to commemorate the 50th anniversary of listed option trading. SIFMA is the Securities Industry and Financial Markets Association; it was formed from the merger of the Bond Market Association and the Securities Industry Association, in 2006. This is a copy of the speech that Thomas gave, about 50 years of listed option trading, through his personal experiences.
Once the market perceived that the "debt ceiling crisis" might not be a crisis after all, it began to rise again. $SPX is right at the top of the trading range and is attempting to break out. Those are very positive things. But before we jump on board with both feet, remember that 1) politicians can't be trusted, and 2) there have been some rather severe false upside breakouts by $SPX in the last couple of years.
