More bad news out of Europe halts oversold rally

By Lawrence G. McMillan

As often happens on the first day of trading after a three-day weekend, the market is buffeted by cross-current, so there are several moves.  Initially, the market was strong yesterday, topping out almost exactly at $SPX 1335.  Then selling drove the index down about 16 points, before a late rally took it back to near the highs.  Even though intraday volatility increased, actual (realized) volatility has not.  Tonight, S&P futures were down about 14 points after more negative news out of Europe.

Weekly Commentary 5/25/2012

By Lawrence G. McMillan

The massive oversold condition that existed at the end of last week has spurred a rally this week.  when the market is as oversold as it got last week, it usually rallies back slightly beyond its 20-day moving average.  That moving average is currently at 1350. 

The equity-only put-call ratios remain on sell signals.  

Breadth has been slightly positive this week, but the breadth indicators continue to remain on sell signals and are still in oversold territory.

Severely oversold but buy signals lacking

By Lawrence G. McMillan

MORRISTOWN, N.J. (MarketWatch) — One thing that all traders figure out sooner or later is that an oversold market can continue to decline — sometimes at an ever-increasing pace. Eventually, of course, traders are “sold out,” and the market rallies. But even though such an oversold rally might be swift and of considerable size, it is often short-lived.

In focus: Oversold rally

By Lawrence G. McMillan

The decline in $SPX this month has been swift, but surprisingly orderly. For example, the 20-day historical volatility of SPX is only 14%, which is extremely low after a decline of the magnitude that we have recently seen.

See the Market Insight column for further information on the large discrepancy between implied and actual volatility.

CBOE to list Nasdaq-100 Volatility Index (VXN) Futures

On May 23rd, the CBOE will be listing futures on the Nasdaq-100 Volatility Index with the symbol /VN.  The Nasdaq VIX futures will be similar to the regular S&P $VIX futures in that they will be "based on the real-time prices of options on the Nasdaq-100 Index," will have a multiplier of $1,000, will trade from 8:30 am - 3:15 pm Chicago Time, and have the same settlement date as the /VX futures ("The Wednesday that is 30 days prior to the third Friday of the calendar month immediately following the month in which the contract expires ").

Is The $VIX Term Structure Rolling Over?

By Lawrence G. McMillan

Is this current market decline the harbinger of a new bearish market phase, or just a pause in the general bull market that was launched in March, 2009, with a couple of healthy bumps along the way?  One answer to that question can be observed in the behavior of the $VIX futures.  The stock market’s decline in the past two weeks has caused the $VIX derivatives to lose some of the bullishness that they have been displaying since last November.   Not only have the futures lost premium, but the term structure has begun to flatten as well.

Weekly Commentary 5/18/2012

By Lawrence G. McMillan

The $SPX chart has turned bearish, with the breaking of the 1340 support level.  However, it is oversold in that it is more than 4 standard deviations below its 20-day moving average, which is currently at about 1370.

Equity-only put-call ratios remain on sell signals, but they are so high on their charts that they are in an oversold state, too.

The breadth indicators have now reached extremely oversold levels, but they are also on sell signals.

In focus: Oversold, but wounded

By Lawrence G. McMillan

The stock market has broken down through several support areas, to the point where it is now below the important support at 1,340 on the Standard & Poors 500 Index. This has turned the overall picture negative, but it has also created some extreme oversold conditions.

It is common knowledge that a bear market can continue to decline, even while oversold conditions exist. However, they eventually give rise to very sharp, but generally short-term rallies.

Oversold Market Due for a Rally

By Lawrence G. McMillan

Following an overnight push to new lows, the market attempted to put together a rally into the 2pm EST Fed minutes.  However, the market stalled and was unable to hold above the $SPX 1340, support-turned-resistance level.  The bears have once again taken control of this market pushing it down to Tuesday’s lows.  In the short-term, the market is very oversold and is due for a short-lived rally.  If the bulls can somehow hold Tuesday’s low, I expect we will see a strong wave of short covering come into the market.

Weekly Commentary 5/11/12

By Lawrence G. McMillan

On Tuesday, May 1st, $SPX traded at 1415.  Now, just 7 trading days later, the entire psyche of the market has become dark and brooding.

$SPX broke down through support at 1390 last Friday.  But the crucial level is support at 1340, which has held so far.

Equity-only put-call ratios remain on sell signals.  This has been the most bearish indicator all throughout this decline.

Breadth oscillators rolled over to sell signals on May 3rd -- a week ago. Since then they have moved into oversold territory.

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