After a shaky overnight session, when S&P futures traded down 10 points at one time, and some opening jitters today (when $VIX traded above 23), the market has settled down and rallied. The rally is another one of those weak, rather pathetic affairs, but that apparently is all that the oversold conditions can generate at this time.
We continue to see the intermediate-term indicators in a negative state, while short-term oversold conditions increase.
The market has had a rough week as the dominant bearish traits of this market have emerged. A couple of oversold rallies have been attempted, but they have been unusually weak. The chart of $SPX is in a downtrend and that is the major trademark of this market.
The equity-only put-call ratios are both on sell signals. They are continuing to rise rapidly, and thus might be considered oversold, but they will be bearish until they roll over and begin to trend downward.
Yesterday’s rally has quickly been forgotten, as the market has cascaded downward today in a series of three large drops. This is further evidence of the fact that the primary trend is down. In fact, considering the hype behind yesterday’s oversold rally, it is actually an even more negative sign that it was obliterated so quickly. The chart of $SPX is in a downtrend, and that is the most important thing. $SPX is once again nearly 3 standard deviations below its 20-day moving average (an oversold condition).
The June VIX Futures settled at 19.73 this morning ($VRO), up $1.71 from the May expiration. This month's settlement is the 2nd highest this year and is the 2nd consecutive higher settlement off the low April bottom.
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This is expiration week. In-the-money put open interest is dominant over in-the-money call open interest, and that is negative. However, the market would have to move lower by Friday in order for large sell programs to take place. At current levels, there is only a slightly negative bias to expiration.
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For the first time since January 7, 2009, the CBOE Equity-Only Put-call ratio is above 1.00. On Friday (June 10th), nearly 880,000 puts traded, while slightly less than 860,000 calls traded. This is a rare occurrence -- as evidenced by the fact that there hasn't be a daily reading above 1.00 in 29 months.
The broad stock market has been under more selling pressure in the last two weeks than in the previous nine months. Intermediate-term indicators are all bearish at the current time, but after five weeks of selling, some oversold conditions have arisen.
First, the chart of $SPX is in a downtrend, and that is bearish.
We normally follow the equity-only put-call ratio as one of our main contrarian indicators. However, there is another put-call ratio that we follow from time to time, as it gives occasional signals. That is the total put-call ratio, and it is on the verge of giving a buy signal. We last wrote about this almost exactly a year ago (Volume 19, number 10&11 [double issue]). In this article, we’ll review the indicator and update the results over the past year.
For the first time in quite a while, the bulls seem to have no power. Rallies are weak and quickly fade to new lows. Oversold conditions that, in the recent past, would have generated strong reflex rallies are having no effect at all. So the overall picture is bearish, but those oversold conditions continue to build along with some other buy signals, and so are worth noting as well.