Stocks were volatile Wednesday, after the FOMC announcements. But, in the end, prices ended up about unchanged. Overnight, though, that changed substantially as a strong rally has unfolded, with S&P futures up 14 points on Globex. Not much has changed with respect to the individual indicators. Both equity-only put-call ratios remain on buy signals. $VIX is still below 15, so that is bullish.
Some analysts occasionally cite the percent that $SPX is above its 20-day or 200-day simple moving averages [when measuring whether a market is overbought or oversold].
For the second time this year, the feature article discusses the overbought state of the stock market. There are quite a few overbought conditions, and all are enumerated in this article. However, overbought does not mean “sell,” unless some actual sell signals are received – which, so far, have been lacking.
$SPX remains in a strong uptrend. However, it has reached overbought levels, in that it is "too far" above its 200-day moving average. The first support level is 1670, and if that is violated, traders should turn cautious.
The equity-only put-call ratios remain on buy signals, despite "wiggles" at the end of some charts.
When one says that “the market” is overbought, he really means that a number of trusted indicators are in extreme states of bullishness. Recognizing that “the market” is overbought is only moderately useful. That’s because an overbought market can still rise strongly, while remaining overbought. Things work similarly, but in reverse, for oversold markets.
In the final article on the new features in Option Workbench 2.1, we will be providing some information on Profile Filtering and also discussing some of the Other Enhancements and Bug Fixes.
Now that the Standard & Poors 500 Index ($SPX) has made new intraday and closing highs, joining the other major indices (except NASDAQ), there is once again no overhead resistance. However, increasingly overbought conditions may combine to slow the rally at least temporarily. $SPX has support just above 1670 (last week's lows), then again at 1650 (the June highs), and then at 1625 or so, where it traded for a time early this month.
The recording of Larry McMillan's How Does One Really Trade Volatility webinar from yesterday is now available for viewing at The Money Show's eTradingExpo. You must first register for the eTradingExpo.
Wtih the recent release of Option Workbench 2.1 we have planned to publish three blog posts detailing the various new features. In today's article - the second in the series - we will be providing some information on Using Fat Tail Distributions.