MORRISTOWN, N.J. (MarketWatch) — The stock market has generally been declining since September 14th — the day after the Fed announced the latest round of Quantitative Easing.
Not only was the market overbought at that time, but the Fed’s announcement was widely anticipated news.
$SPX rallied strong yesterday, bouncing off the support at 1425-1430, and that support was/is bolstered by the rising trendline at the bottom of the trading channel that has defined this bull market since June. The buying accelerated late in the day, and it seemed as if the bears were capitulating to some extent. Overnight, S&P futures have been strong again – gaining another 7 points in Globex trading.
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We have been bullish continuously since early June. But recent events and indicator changes have put this short-term forecast into jeopardy.
$SPX has support at 1430 from two downward probes in September. This week, that has also been the low. Hence, it has become important support.
One of the more negative developments is the fact that both the standard and the weighted equity-only put-call ratios are on sell signals now.
As readers know, we have been bullish continuously since early June. Even as late as a week ago, it still seemed possible for this market to move higher over the short term. But recent events and indicator changes have put this short-term forecast into jeopardy.
The stock market continues to mark time, in the wake of the massive overbought condition that arose on September 14th -- right after the Fed announced the latest round of Quantitative Easing. This type of action will, in my opinion, lead to a rally to new highs.
$SPX remains well within the bullish channel that has defined this market since the early June lows.
The stock market continues to mark time, not really declining much as it works off the overbought condition from a couple of weeks ago. It is still our opinion that once this short-term correction is over, higher prices will lie directly ahead.
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We often say that it is positive for an emerging bull trend to get heavily overbought – that this is an indication that the rally is strong and broad. In this article, we’re going to put that statement to the test by identifying (and quantifying) severely overbought markets and seeing how they performed up to 100 trading days later. This should provide some solid evidence of whether we need to relish or fear a severely overbought market.
The broad market, as measured by the S&P 500 Index ($SPX) remains in a bullish uptrend. The recent selling has drawn the index down from the top of the bullish channel that has defined this uptrend since early June (see Figure 1), but it only pulled back about halfway through the channel.
Equity-only put-call ratios are mixed. The standard ratio (chart, above left) continues to decline nearly every day. Thus it remains on a buy signal. The weighted ratio has now curled upward and is marked as a sell signal.