The feature article deals with two indicators that we have occasionally referenced. They are long- to intermediate-term indicators and both are either on a sell signal or on the verge of one. The studies involving these indicators were much more complicated than normal systems because of the longer-term nature of the holding period.
The overbought conditions that had existed a couple of weeks ago were largely worked off by a sideways to slightly down stock market, as measured by the Standard & Poors 500 Index ($SPX). It seems that the bears had their chance, but didn't seize it once again. There is strong support in the 1670-1680 area.
Equity-only put-call ratios remain on buy signals. Note the charts if Figures 2 and 3.
The stock market has proved to be very resilient once again. Overbought conditions -- which looked formidable a couple of weeks ago -- have mostly abated with only a slight downward (and mostly sideways) move by the Standard & Poors Index ($SPX). Now, new highs have been registered, and the bears can only lament once again that they failed to capitalize.
$SPX has support in the 1670-1675 area, which is the area of daily lows several times in July.
Stocks were volatile Wednesday, after the FOMC announcements. But, in the end, prices ended up about unchanged. Overnight, though, that changed substantially as a strong rally has unfolded, with S&P futures up 14 points on Globex. Not much has changed with respect to the individual indicators. Both equity-only put-call ratios remain on buy signals. $VIX is still below 15, so that is bullish.
The "interpreters" are in charge of this market. They are the people who interpret what they think Bernanke said, and then they act accordingly in the stock market. Frankly, I am in the camp that Bernanke has not changed his message at all -- he has consistently said that QE will remain in force until economic conditions improve (and there is no improvement -- at least in the indicators he is watching).
On Monday, stocks rallied early, and held onto the gains throughout the remainder of the day. Overnight, S&P futures were up another 6 points in Globex trading. In other words, the upside momentum is strong and the bears seem to have disappeared. Support is at 1615.
Ever since the broad market bounced just over a week ago from the 1560 level, the bulls have been trying to gain complete control. So far, they have been stymied. $SPX has not broken out over resistance, nor has $VIX broken its uptrend. However, one other important indicator has turned bullish -- the put-call ratio.
$SPX has topped out in the 1620-1630 range for several days. A close above 1630 would be positive.
Today is a half-day, holiday-shortened session, and Friday will likely be a very low-volume affair. However, that doesn’t mean that prices can’t be volatile. In the bear market of 2002, the bulls engineered a 300-point Dow rally out of nowhere on July 5th, only to see the bears wipe it out completely in a few days after that. But if you have positions, these big moves can be meaningful.
The speed with which $SPX fell -- 63 points in two days -- meant that it sliced right through support areas without stopping. There is support at 1560 -- this week's low on $SPX. Furthermore, there is important support below there, at 1540, from a series of lows back in March and April.
Equity-only put-call ratios have not given confirmed buy signals yet. They remain on sell signals.
The initial selling on Wednesday afternoon was probably just some profit-taking by traders who'd bought heavily on Monday and Tuesday. But then the selling gathered momentum.
