This is the second of two articles on weekly calendar spreads. In the last issue, we dealt with some of the complexities of this strategy, and promised to finish the study so that we could begin using some of the strategies in this newsletter – if they proved viable in our studies. Even though we weeded out some of the possibilities with the research presented in Part 1 of this subject (published in Volume 20, No. 9), there were still plenty of possibilities remaining.
A number of bearish signals have arisen over the past two weeks, and the market has declined -- albeit only slightly. The bears have not really capitalized on what have been favorable technicals. That doesn't mean they still can't, but the broad market has weathered the storm fairly well. The down trend line in $SPX remains intact, and there is resistance at 1330.
Equity-only put-call ratios turned decisively bearish during the last week also, as they are now rising steadily.
The settlement for the CBOE Volatility Index (VIX) May futures contract was 18.02, up by a healthy percentage from the April settlement of 14.86. Moreover, VIX itself began to rise late this week. A rising VIX is generally symptomatic of a bearish stock market, so these rises may be a warning sign to stock holders that a correction is approaching.
The bears have slowly been gaining strength over the past week. The easiest way to tell is that the Standard & Poor’s 500 Index has slowly been trending lower and lower. The accumulation of this selling has produced some oversold conditions, though.
The stock market was under some pressure entering this week, but a positive intraday reversal on Tuesday has stemmed the bearish tide, and may have turned things bullish once again.
The equity-only put-call ratios are in trading ranges. They gave appropriate sell signals at the end of April and since then they looking like dampening waves with each subsequent high or low.
Market breadth has recovered this week, but the readings on our breadth indicators are neutral.
The market was extremely strong on Wednesday, but it is unclear if it was merely a double bonus of a) an oversold condition, and b) a strong commodity market. We have recently seen the stock market move in conjunction with the commodity markets, and it is possible that Wednesday's move was exacerbated by the big move in commodities. There are plenty of both bullish and bearish signs to gather from Wednesday.
The Standard & Poor’s 500 Index fell to new relative lows this week, finally closing below the 1330 level and trading down to 1318 — which was just about the level of the longer-term bull market trend line, connecting the August 2010 and March 2011 lows. That “touch” of the longer-term trend line, plus some overbought conditions, combined to produce a sharp rally today.
But, the overall picture is a more bearish one, since there is a downtrend now in force on the S&P 500 SPX +0.88% chart.
The stock market is shooting back and forth like a futures contract. In any case, the 1330 level on $SPX remains our bullish demarcation line. A close below there would turn us bearish.
Equity-only put-call ratios had generated sell signals a couple of weeks ago, but those may be fading.
Last week, breadth indicators had generated sell signals. But positive breadth for a few days moved breadth back to a neutral status.
CHICAGO (May 12, 2011) – The Options Industry Council (OIC) announced today Lawrence G. McMillan as the 2011 recipient of the Joseph W. Sullivan Options Industry Achievement Award. This recognition on behalf of outstanding contributions to the growth and integrity of the U.S. options market will be presented to Mr. McMillan at the 29th Annual Options Industry Conference, held at the Westin Savannah Harbor, from May 12-14.
The stock market is shooting back and forth like a futures contract. In fact, the whole market seems to be tied quite directly to the price of oil, silver, gold, and the like. When the market is linked to an unusual “force” such as this, some additional caution is required. At least technical analysis doesn’t care why moves are being made, but rather is just concerned with the price movements themselves.