$SPX has closed below 1495 and $VIX has closed (way) above 16.21, so those are sell signals on both charts. Moreover, both equity-only put-call ratios have rolled over to sell signals as well. In addition, the CIV sell signal arrived, as the average stock’s CIV has risen to the 23rd percentile (well above the 17th percentile, which is what was required for the sell signal). There are other negatives as well – such as the major negative reversal that the market underwent on Monday (or, if you prefer – a outside down day).
On Friday, we said that if the bulls could hold onto the opening gains throughout the day, then last week’s action would likely be viewed merely as a very short-term correction. Not only did they hold onto those gains, but they closed prices at the high of the day. Then, Sunday night, the bulls kicked in with another rally, pushing S&P futures up 7 points (or more) overnight. This is strong action, but a close above the highs at 1530 is needed to completely reaffirm that the bulls are back in control.
Some of the stock market boredom has ended, as a number of traders took the Fed Minutes on Wednesday as a sign to do some selling (the Fed apparently discussed that -- some day -- the easing would have to end; personally, I don't think it will end in the foreseeable futures (years), but that's just my opinion).
$SPX has pulled back to the 1495 support level, which is also where the 20-day moving average currently is. This is a normal pullback, in terms of the $SPX chart. But a close below 1495 would be negative.
The market continues to sell off today, extending what began shortly after the Fed minutes release yesterday afternoon. This morning's economic numbers provided no relief with unemployment claims and the Philly Fed index numbers coming in worse than expected. The gap lower and open at the high are very weak signs in terms of price action, though it will take a close below $SPX 1495 to confirm a bearish outlook in terms of price alone.
The three-day weekend was apparently long enough for the bulls to reload and come into the market strongly again yesterday. All of the major averages closed at new highs, and in most cases, 5-1/2 year highs. $SPX was among that group. $VIX and $VXO both traded at their lowest levels since April, 2007. The breadth oscillators expanded strongly, since breadth was very positive. They remain on buy signals, albeit in overbought territory.
$SPX had been contained within a range of 1495 to 1515 for about two weeks. This week, though, the index has broken out to new highs, above that 1515 level. That is positive.
Technically, that 1495 to 1515 level should provide good support for any pullbacks. In fact, a close below 1495 would be negative, and would probably signal the onset of a more severe correction. Below there, support exists at 1460-1470, the area of the 2012 highs.
Most professional traders tell novice investors not to chase earnings. I have felt that way throughout my trading career. However, I never actually did any statistical work, nor did I come across any papers of statistical work by others, that actually document this fact. That statistical work – or at least some of it – has now been done by us, and the results are presented in this article.
Currently, option implied volatilities are near extreme lows, by many measures. We have seen that VIX got down to nearly 12. It has been below 10 in the past, though, so it is not at historically low levels. However, many stocks have options that have never been cheaper. For example, IBM’s composite implied volatility (VIX) has been hovering near 10 lately. It has never had cheaper options in the nearly 40 years that listed options have been traded on the stock.
$SPX has bounced back and forth in the 1495 to 1515 range for nearly two weeks. A breakout in either direction would likely be enough to spur further momentum in the direction of the breakout.
Equity-only put-call ratios continue to meander sideways. As such, they are not particularly useful indicators right now.
Market breadth has been positive enough to keep the breadth oscillators on buy signals. They are also slightly overbought.
The “game” of stock market predicting holds appeal for many because one who can do it seems powerful and intelligent. Everyone has his favorite indicators, analysis techniques, or “black box” trading systems. But can the market really be predicted? And if it can’t, what does that say about the time spent trying to predict it? The answers to these questions are not clear, and even if one were to prove that the market can’t be predicted, most traders would refuse to believe it anyway.