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Trade the Rumor, but Carefully

The rumor mill is running overtime lately, with takeover talk on the upswing in the markets. Most rumors don't lead to signed and sealed deals, and actual transactions aren't much discussed in advance. But mere talk about deals can lead to heavy and potentially profitable option activity, especially as one can attain a large amount of leverage if there is a big jump in a stock's price.

Stock Market Commentary 4/1/2011

$SPX has not made new highs (yet), but it has broken out above the 20-day moving average, the downtrend line from the highs, and the short-term resistance that had developed in the 1300-1320 area.

Equity-only put-call ratios have rolled back over to buy signals, which is a very significant positive intermediate-term development.

Breadth oscillators -- which are the most sensitive indicator of this group -- turned to buy signals over a week ago, and have remained on those buy signals ever since.

Futures in Volatility: Market Summary and Analysis


The broad stock market, as measured by the S&P 500 Index (SPXSM) finally had a pullback.  However, the CBOE Volatility Index (VIX) responded only in a modest upward fashion.  As a result, the VIX futures have retained the same steep slope to their term structure.  That is, it will likely be business as usual until either a) the market falls so sharply that the term structure flattens, or b) SPX (put) option buyers finally give up on their strategy and allow the implied volatility of those options to decline.

Two Major Signals Lurk

When a bullish market is too steady for too long, overbought conditions occur. These are normal and are usually worked off by a (perhaps) sharp, but short-lived correction. However, there are other kinds of extremes that arise that are not so easily worked off, nor so short-lived in their ramifications. Two of those are now building up, and they may signal a very volatile market in the near future. In fact, there is a third – the steepness of the $VIX futures term structure – but that’s something that we’ve discussed in detail before.

Stock Market Commentary

The following Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.

$SPX fell rather sharply in the days after it made a new high on November 5th, the day of the post-FOMC meeting euphoria. As a result, there is major resistance in the general area of 1220.

The equity-only put-call ratios are once again at odds with each other. The weighted ratio is still the one upon which are putting the most weight, and it is on a sell signal.

The breadth indicators have returned to buy signals.

TradeStation Announces New LiveOnTheWeb Spotlight On Seminar

Larry McMillan will be doing a free webinar for TradeStation on December 7th. See the press release below for more information and to sign up.

GlobeNewswire - Nov 15 at 07:40
Company Symbols: NASDAQ-NMS:TRAD

Stock Market Commentary

The following Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.

The S&P 500 Index ($SPX) could not hold the attempted break out over resistance at 1120 last week. So far, the pullback from that level has been orderly -- not even retreating to the rising 20-day moving average.

The intermediate-term indicators are still bullish. $SPX is in a general uptrend, above support at 1180-1200, and above its rising 20- day moving average.

MTA Interview

Larry McMillan was recently interviewed by the Market Technicians Association. Listen to the interview at http://media.mta.org/podcasts/2010-NOV09-larrymcmillan.mp3.

Visit the MTA Website at http://www.mta.org.

Stock Market Commentary

The following Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.

Despite good strength following the FOMC meeting, the market has to clear two more hurdles before the bulls can claim to be in charge: it has to get by Friday's unemployment report, and it has to overcome resistance at 1220 on $SPX.

Let's begin with the $SPX chart. Notice the positive momentum. Both $SPX and the 20-day moving average continue to rise.

The weighted equity-only put-call ratio continues to be bullish.

Election Day Commentary

The market is in something of a holding pattern as this is election day, 2010.  The expectations are, of course, for a Republican victory to reclaim the House, and now there is even a reasonable chance that they take the Senate, too.  The market views this news as very positive.  Not to throw cold water on the never-ending party, but it should be noted that the first Republican gains against President Roosevelt came in the mid-term elections of 1938 (the Democrats did not lose seats during the first Roosevelt mid-term election in 1934).  For those who have studied our an

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