Recently, the CBOE’s Volatility Index ($VXST) closed above all three of the other CBOE Volatility Indices. At the time, it struck me as being a rather rare occurrence, and it seemed there might be some considerations as to forthcoming market movement. Consequently, a rather extensive study was performed, and indeed a trading system did emerge, as this article will reveal.
$SPX has now climbed slightly above its declining 20-day moving average, and that is where oversold rallies usually die out. Despite the strength of the last week, $SPX has not even exceeded last week's high, much less the more important peak of early December. It is in a downtrend, with a pattern of lower highs and lower lows.
Stock market volatility continues to be above-average. The oversold rally that took place earlier this week seems to have run out of steam.
The $SPX chart is now showing lower highs and lower lows. That is a bearish trend developing. It will remain in effect until the most recent high is exceeded (2100, in this case).
Both equity-only put-call ratios remain on sell signals.
Breadth is the difference between advancing issues and declining issues, usually measured on a daily basis. Since the major averages only reflect what has happened to a few of the more important stocks (500 stocks in the Standard & Poors 500 Index – $SPX – for example, or 30 stocks in the Dow Jones Industrial Average), technicians have long used breadth as a measure of the health of the overall stock market.
So far in December, we've seen volatile $SPX daily moves of +22, -23, -30, +42, followed by a 4-day decline of 75 points. There is resistance at 2100 (the late November peak) and support at and 2020 (the November lows).
Equity-only put-call ratios remain bearish, since they continue to rise. Their rise is faster now, since put buying has increased in intensity this week.
The $SPX chart now has heavy resistance in the 2080-2100 area, where it spent most of the previous two weeks. The support at 2020 (November lows) is still in place as well, and will likely be tested in the coming days.
Both equity-only put-call ratios are on sell signals, and they are now beginning to race higher on their charts.
There has been a fair amount of talk lately about how large capitalization stocks are the main reason that this market is still near all-time highs, in terms of the larger indices. There is some truth to this statement, but we will look at a historical perspective as well. There have been some rather preposterous statistics in this regard cited on TV, and I have no way of knowing if they’re true or not.
The market is struggling to maintain the rally that began with an abrupt V-bottom on November 16th. It may be merely an oversold rally.
From a larger perspective, $SPX has support at 2020 (the November lows) and resistance at 2120-2135 (the row of highs made in the last year or so).
Equity-only put-call ratios are split in their outlook. The weighted ratio rolled over to a sell signal a little more than a week ago, but the standard ratio remains on a buy signal (see Figures 2 and 3).
The stock market, as measured by the S&P 500 Index ($SPX), did a complete about-face this week, despite the terrorist atrocities after the market closed last Friday.
The rally has carried back to just above the 20-day moving average. Ultimately, there is resistance from 2115 to 2135, the series of market tops that have been made in the last year.
There is a brief window over the next couple of weeks where the market could be vulnerable, before bullish end-of-the-year seasonal patterns come into play. Our short-term market opinion is bearish (page 5), which fits within this scenario.
Meanwhile, the feature article addresses several of the seasonally bullish patterns, the most prominent of which we call the Post-Thanksgiving Seasonal trade. A recommendation is made for that system, on page 3.