The stock market, measured by almost any broad-based index, made it through the entire month of January in a completely bullish mode. Thus the bullish trend is intact. As for technical levels, $SPX might see some resistance at 1520. If an overbought correction does materialize, it should find support in the 1460-1470 area.
Equity-only put-call ratios have drifted into a tight, sideways range. As a result they are not trending, and thus are not giving much of a signal one way or the other.
Section 1256 trades include all futures trades, as well as futures options. They also include option trades on cash-based indices ($OEX and $SPX, and especially $VIX), but not SPY or QQQ, for example, for the underlying there is an ETF, not cash.
The broad stock market continues to advance almost every day. $SPX is now trading at prices last since in December, 2007. It is not far from the all-time highs of October 2007. Support exists at 1460-1470.
Equity-only put-call ratios are on sell signals. It is quite unusual to see these reliable intermediate-term indicators on sell signals, yet the market continues to rise.
There are several ways to measure an overbought market, and we’ll review many of them in this article. It is common knowledge that overbought markets eventually sell off – sharply, in most cases. But how long can a market remain overbought before it actually begins to decline? As it turns out, an overbought market can exist for quite a while before succumbing. Thus, it is important to wait for the overbought condition to abate and for actual sell signals to occur, before one ventures in on the short side.
After drifting sideways in a state of virtual somnambulation, the stock market finally broke out to the upside Thursday. Based solely on the chart breakout, everything looks rosy. However, there are some serious overbought conditions in place, which will eventually have to be dealt with.
As for the $SPX chart itself, the breakout over previous resistance at 1475 means that the 1475 level is now support. Below that, there is still support at at 1450 and 1430.
After we last published The Option Strategist Newsletter, volatility spiked sharply higher for one day and then plunged. The plunge coincided with the passage of the temporary measure to avert the fiscal cliff, and the stock market exploded to the upside. The resulting spike peak in $VIX was a buy signal for stocks. However, $VIX is now quite low, and other volatility measures have been dragged down as well.
Despite overbought conditions, the market closed at a new post-2008 high. The breakout on the $SPX chart is not definitive yet, as it has just edged above the 2012 highs. There seems to be a lot of side-lined money, and a close above 1475 would likely draw some (more) of it into the market.
For the record, a pullback towards $SPX 1430 should alleviate those overbought conditions, and may present a buying opportunity. There is also support at 1450 -- this week's lows.
Thanks to a jittery market and some hijinks from our elected representatives in Washington, DC, the stock market had one of its biggest whipsaws this week. These machinations have created some changes in the technical indicators, but in general, they are back to bullish signals for the most part.
The $SPX chart remains bullish, thanks to the fact that $SPX itself never closed below 1400. Hence, the $SPX chart never broke down.
Equity-only put-call ratios have now rolled back over to buy signals.