...Volatility indices ($VXST, $VIX, and $VXV) literally collapsed yesterday. They were down in the morning after Tuesday’s somewhat surprising strength, but on Wednesday afternoon, they were really crushed. Short-term vol ($VXST) was down 16.7%, while $VIX was down 12% – pretty big moves. This has several implications. The first is that our “bearish demarcation” line of 13 for $VIX was pretty good.
The feature article discusses ways in which the market is “overbought,” from time spent above the 200-day moving average, to the time since a 10% correction has occurred, to the low state of the volatility indices. In essence, though, these are not sell signals, for the market can continue to rally even while it is overbought.
As far as the $SPX chart is concerned, it has support at 1900. In fact, there is really support all the way down to 1860. A close below 1860 would change things, turning the chart to a bearish state if that were to happen.
Equity-only put-call ratios remain on buy signals. The standard ratio (chart, Figure 2) finally got in synch with the weighted ratio and issued a buy signal a couple of weeks ago.
There are many ways that analysts have been disseminating statistics that show the current market environment is at historic levels, not only in terms of price, but in terms of the length of time it’s gone without corrections of various magnitudes.
The market is tired and overbought, but even so it managed to claw its was back yesterday afternoon, reducing the losses to mere fractions. As a result, the indicators closed in their previous bullish states. However, today there is some selling. Ostensibly this is because of a negative World Bank growth forecast. But in reality, plenty of people see the overbought condition and are looking for an excuse to sell. We would rather wait for actual sell signals.
If there were any doubts about the validity of the breakout to new all- time highs, they should be satisfied by now. $SPX has support at 1900, and then all the way down to 1860.
The equity-only put-call ratios remain on buy signals. The standard ratio had been lagging, but finally moved into the bullish column last week, joining the weighted ratio.
Market breadth was on the verge of sell signals this week, but they did not occur. So, both breadth oscillators remain on buy signals.
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The broad market, as measured by the Standard & Poors 500 Index ($SPX) and other indices, has broken out to new all-time highs again. This time, the breakout quickly extended with a strong second day, and today added even more distance. This has turned the $SPX chart bullish.
This is the only issue to be published in May, and it is a “double issue.” The reason for this change in the publication schedule was an extensive travel schedule from April 30th through May 15th. While not technically twice the length, there are twice the number of articles.