By Lawrence G. McMillan
The market has staged a ferocious oversold rally. Bear market rallies always look great until they fail. This rally has now reached the upper side of the downtrend channel (blue lines in Figure 1). Of course, it is always possible that this is the real thing i.e., a market bottom -- and not an oversold rally. In my opinion, the difference- maker will be if $SPX can close above 4600.
Equity-only put-call ratios reached extreme highs on the latest market decline (through March 14th), and now are appearing to turn downwards. The weighted ratio has dropped over the past two days, thereby earning a "buy" signal designation from the computer programs that we use to analyze these charts. However, the standard ratio is still on a "sell."
Breadth has certainly improved over the last three days and that has generated buy signals from both breadth oscillators.
Meanwhile, the indicators involving $VIX and its derivatives have improved somewhat. The overlapping "spike peak" buy signals of late February and early March are still in place.
Our market outlook remains the same, although a bit more uncomfortable: we continue to hold the "core" bearish positions, and will trade confirmed buy signals around that.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.
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