If there is a theme to this market, it's this: it's overbought, but continuing to rise. There is strong support for $SPX at 1810. Moreover, there is now resistance near 1850.
Now for the litany of bullish, but overbought indicators: Equity- only put-call ratios are typical of this group. Both ratios are declining, and that is bullish. In addition, both ratios are at the lowest levels on their chart and that means they're overbought.
Stocks have been fairly dull so far in 2014, but some movement is probably setting up soon. Not much has changed with respect to the indicators that we follow, but let's review them anyway.
The Standard & Poors 500 index ($SPX) has pulled back modestly. As long as the support at 1810 remains intact, the trend is bullish for $SPX.
Equity-only put-call ratios continue to remain near the lower regions of their charts (Figures 2 and 3). This means they are in an overbought state.
The new year started with a thud, as selling pressure that had been building up over the past few days was released. Even after the selling, the $SPX chart is bullish, as long as it remains above 1810.
Equity-only put-call ratios have rolled over to sell signals, from very low (overbought) levels on their charts.
Market breadth had been quite strong -- until January 2nd. Breadth was so negative today that the breadth indicators are just barely clinging to buy signals at this time.
The rally that began last week with the Fed announcing tapering has broken out strongly to new highs. The fact that this occurred during a seasonally bullish period has certainly helped, too. $SPX will remain bullish as long as it holds above support at 1810.
Equity-only put-call ratios are shown Figure 2 & 3. Both are at new lows now, and as such they are both on buy signals (because they are declining) and they are overbought (because they are so low on their charts).
Even with the volatiilty following the FOMC meeting, SPX still has not broken out of the 1775-1812 range on a closing basis. If it DOES break out to the upside, the positive year-end seasonality should help.
The equity-only put-call ratios moved to sell signals about a week ago, but those signals are now wavering.
Market breadth gave buy signals earlier this week, but now those two breadth indicators are mixed: one on a buy; the other on a sell.
The market -- as measured by the S&P 500 Index ($SPX) -- has declined on eight of the last ten days, and that has taken a toll on the technical indicators. However, $SPX is sitting right on support at or just below 1780 (see Figure 1). Hence, shorting the market now could be a mistake.
The feature article discusses various trading strategies and systems around Thanks-giving Day. The article culminates with the recommendation that we already made in previous Hotlines: to buy “the market” at the close of trading on the Wednesday before Thanksgiving. The article provides some new ways of looking at the entire trade, including holding longer than we have in the past.
Price action -- via the $SPX chart -- and volatility have remained bullish. We have often said that price is the main indicator and that has certainly been the case this time.
Equity-only put-call ratios turned bearish a little more than a week ago and remain on sell signals.
Market breadth has generally been weaker than the market until very recently, but now the breadth indicators are rolling back over to buy signals.
There are a number of systems and indicators that we follow – some with frequent signals, others with as few as annual signals – that are worth noting, as the broad stock market makes new all-time highs. Some of these are related to market prediction, while others have nothing to do with stocks. So, in that sense, this article is a bit of a potpourri.
The stock market has had plenty of reasons to weaken, yet it can barely go down at all. This is a very powerful market.
$SPX has support at 1730, 1750, 1770, and now may have established another support area at yesterday's lows near 1780.
Equity-only put-call ratios generated sell signals this week.
Market breadth continues to be relatively weak. As a result, the breadth indicators generated fresh sell signals recently.
