Weekly Stock Market Commentary 11/8/13

By Lawrence G. McMillan

The broad stock market, as measured by the Standard & Poors 500 Index ($SPX) was seemingly impervious to an increasing overbought condition.  But today after moving to new highs, the buyers finally ran out of gas, and the market reversed downward sharply.  The negative trend should last for at least a short while.

The equity-only put-call ratios have been the lone bullish holdout.  But now, the weighted put-call ratio has given a sell signal.

Market breadth has been weak of late.  The breadth indicators gave sell signals last week and those sell signals remain in place.

Volatility indices ($VIX and $VXO) have remained quite subdued. $VIX was below 13 on several occasions in the last three weeks, and that represents an overbought state (for stocks). $VIX finally closed at its highest level in three weeks today, but we continue to maintain that it will take a close above 15 to generate an actual sell signal.

In summary, we expect that this correction will magnify, even if it is short-lived.  A probe below support at 1730 would likely cause some consternation amongst the recently complacent bullish community.

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