The stock market staged a strong rally on Tuesday. Was it just a “Turnaround Tuesday” — a reaction to an oversold condition that had developed via the heavy selling of last week — or was it a true change of sentiment from bearish to bullish? To answer that question, we can look to our technical indicators, for several of them are right on the brink of turning bullish. The bulls actually had a strong chance to effect that change today, and they did not.
Lawrence G. McMillan was the 2011 recipient of the The Options Industry Council's (OIC) 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 was presented to Mr. McMillan at the 29th Annual Options Industry Conference, held at the Westin Savannah Harbor, on May 13th, 2011. In this video, Larry accepts his award and discusses how options became a part of his life and explains how his best selling book, Options As A Strategic Investment, came to be.
July $VIX settlement took place this morning. The official settlement price was 19.10, just slightly below last night's $VIX close of 19.21. All outstanding June futures and options contracts will settle at that price. For example, if you own a July 20 put and didn't sell it prior to today, it would settle for 0.90 ($90 per contract), since it is 90 cents in the money (20 minus 19.10).
The market is finally staging a strong rally. Is it just a “Turnaround Tuesday” thing, or have the bears fumbled the ball (they weren’t moving it very well anyway)? I’m sure there’s plenty of room for debate regarding either of those stances, and both are probably true to some extent.
Today’s move solidifies support on $SPX at 1295-1300, and that remains an important area. On the upside, the important level to overcome would be the 1330 level.
Put-call ratios are excellent measures of the sentiment of the general option-trading community. When the sentiment is that "too many" people are buying puts or calls, it is worthwhile to pay attention, for the majority are normally wrong at major turning points, and their actions can be interpreted into a market trading signal.
Those who are familiar with our strategies concerning takeover rumors and bids know that we eschew most rumors, preferring instead to concentrate on situations in which either a) the company has announced that it is “exploring strategic alternatives” – effectively putting itself up for sale – or b) has a bid in hand, but the stock is trading higher than the bid – indicating that perhaps a higher bid is forthcoming from another party. We have written about this approach in several feature articles in the past.
The market action this week has been quite bearish and, frankly, quite out of character in terms of the indicators, but it may also be a rather severe reaction to the overbought conditions that had built up.
The S&P 500 Index ($SPX) had strong upside momentum a week ago, but ran into resistance very near the April highs.
Equity-only put-call ratios are bullish and have remained bullish even during this week's decline.
In this video recorded on June 17th at The TradersExpo Dalls, Larry McMillan discusses the predictive power of the put-call ratio indicator and predicts the rally at the end of June 2011. Larry also talks about the rare CBOE equity only put-call ratio signal and the total put-call ratio and what they mean for the market.