Oversold conditions had built up over the past couple of weeks, and they finally spurred a decent rally -- mostly all in one day this week (Tuesday).
The chart of $SPX itself remains in a bearish downtrend, with the series of lower highs and lower lows.
Equity-only put-call ratios raced higher over the past two weeks, reaching oversold status as the market continued to decline. Then, when the rally unfolded, the standard ratio rolled over to a buy signal, while the weighted ratio topped out as well.
After some major oversold conditions developed, the stock market managed two tepid rally days and then one strong one. That brought the Standard & Poor’s 500 Index back up to its declining 20-day moving average, which is usually about the full extent of an oversold rally.
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.
For an extenisve analysis of the Volatility and Variance Futures and Options Markets, subscribe to The Option Strategist Newsletter.
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.
Click here to sign up for the Daily Volume Alerts newsletter. 7 Day free trials are available.
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.