By Lawrence G. McMillan
Despite a rather severe oversold condition, there have been no actual confirmed buy signals issued yet. This oversold condition has persisted for the past couple of weeks, spurring modest rallies, but all that seems to have done is to ease the oversold condition a bit and make way for the next wave of selling, such as we saw today.
By Lawrence G. McMillan
As often happens on the first day of trading after a three-day weekend, the market is buffeted by cross-current, so there are several moves. Initially, the market was strong yesterday, topping out almost exactly at $SPX 1335. Then selling drove the index down about 16 points, before a late rally took it back to near the highs. Even though intraday volatility increased, actual (realized) volatility has not. Tonight, S&P futures were down about 14 points after more negative news out of Europe.
By Lawrence G. McMillan
The massive oversold condition that existed at the end of last week has spurred a rally this week. when the market is as oversold as it got last week, it usually rallies back slightly beyond its 20-day moving average. That moving average is currently at 1350.
The equity-only put-call ratios remain on sell signals.
Breadth has been slightly positive this week, but the breadth indicators continue to remain on sell signals and are still in oversold territory.
By Lawrence G. McMillan
MORRISTOWN, N.J. (MarketWatch) — One thing that all traders figure out sooner or later is that an oversold market can continue to decline — sometimes at an ever-increasing pace. Eventually, of course, traders are “sold out,” and the market rallies. But even though such an oversold rally might be swift and of considerable size, it is often short-lived.
By Lawrence G. McMillan
The decline in $SPX this month has been swift, but surprisingly orderly. For example, the 20-day historical volatility of SPX is only 14%, which is extremely low after a decline of the magnitude that we have recently seen.
See the Market Insight column for further information on the large discrepancy between implied and actual volatility.
By Lawrence G. McMillan
The $SPX chart has turned bearish, with the breaking of the 1340 support level. However, it is oversold in that it is more than 4 standard deviations below its 20-day moving average, which is currently at about 1370.
Equity-only put-call ratios remain on sell signals, but they are so high on their charts that they are in an oversold state, too.
The breadth indicators have now reached extremely oversold levels, but they are also on sell signals.
By Lawrence G. McMillan
The stock market has broken down through several support areas, to the point where it is now below the important support at 1,340 on the Standard & Poors 500 Index. This has turned the overall picture negative, but it has also created some extreme oversold conditions.
It is common knowledge that a bear market can continue to decline, even while oversold conditions exist. However, they eventually give rise to very sharp, but generally short-term rallies.
By Lawrence G. McMillan
Following an overnight push to new lows, the market attempted to put together a rally into the 2pm EST Fed minutes. However, the market stalled and was unable to hold above the $SPX 1340, support-turned-resistance level. The bears have once again taken control of this market pushing it down to Tuesday’s lows. In the short-term, the market is very oversold and is due for a short-lived rally. If the bulls can somehow hold Tuesday’s low, I expect we will see a strong wave of short covering come into the market.
By Lawrence G. McMillan
On Tuesday, May 1st, $SPX traded at 1415. Now, just 7 trading days later, the entire psyche of the market has become dark and brooding.
$SPX broke down through support at 1390 last Friday. But the crucial level is support at 1340, which has held so far.
Equity-only put-call ratios remain on sell signals. This has been the most bearish indicator all throughout this decline.
Breadth oscillators rolled over to sell signals on May 3rd -- a week ago. Since then they have moved into oversold territory.
By Lawrence G. McMillan
Negative thinking has enveloped Wall Street in the last week. It’s rare to see to such obvious negative news reflect itself so directly in lower prices, but that’s what has happened in the last six trading days.
There has been a good deal of technical damage done in that short time, but oversold conditions are also emerging rapidly. Therefore there is still a chance that this is merely a correction in a bull market. Support levels are near at hand, though, and if they are broken, then a more significant bearish scenario could unfold.
