Earlier this week, it appeared that the rally that began at the end of October was lagging. But then Thursday, the market blew through resistance at 2040 and reaffirmed the bullish case with authority. A violation of the 1990 would remove the "bullish" label from the $SPX chart.
Equity-only put-call ratios remain on buy signals, as they continue to decline (Figures 2 and 3).
The stock market has taken on a much more bullish tone since the late- September lows. We had several buy signals on September 30th, and they were well-timed. The bullish case is still strong, even after $SPX has advanced 150 points this month.
A week ago, we noted that there were three short-term, oversold buy signals. Now, more buy signals are occurring, and these are of the intermediate-term variety. The last hurdle was cleared today, when the $SPX closed above 2000.
Equity-only put-call ratios remain on buy signals, as they continue to decline from recent highs.
Despite a couple of rough days this week, buy signals have emerged from our short-term oversold indicators, and so we have a more bullish outlook for the short term but not necessarily for the intermediate- term.
$SPX has retested the August lows and formed a "W" bottom, so that is support at 1870. A violation of that area would force a retest of the October lows at 1820. A move above 2000 would be bulllish.
The $SPX chart remains bearish. During the oversold rally that failed at the 2000 level, an upward trend line had developed on the $SPX chart, connecting the daily lows since the 1870 bottom. That trend line was broken decisively this week, as $SPX fell back below its 20-day moving average. For now, the $SPX chart is bearish as long as it remains below the broken trend line (see Figure 1).
There are several seasonal trades that we use in the fall of the year – primarily the “October seasonal,” the “Post-Thanksgiving Trade.” and the “Heating Oil – Unleaded Gas Seasonal.” There are some others, too, that we don’t usually trade, such as the “January Effect” (which actually occurs in December), the “Santa Claus Rally,” and other trades surrounding Thanksgiving. As noted, we don’t usually trade the latter three specifically, but we have incorporated them into first set of systems that we do trade.
Now that the Fed meeting is over, and they didn't raise rates (as we have been predicting), what do we really know? Stocks rallied strongly heading into the announcement, and then there was heavy buying right after the announcement. But the party on Thursday didn't end well, with sell programs emerging that knocked $SPX back down and held $VIX up.
Stocks continue to remain in bearish trends. There have been some sharp rallies, but none of them has even reached the now-swiftly-declining 20-day moving average. There is heavy resistance at 1990, with support at 1900 and 1860. Below that, the next target would be 1820.
Put-call ratios have reached extremely high (oversold) levels. The standard equity-only ratio has given a buy signal (Figure 2) But the weighted ratio has not (Figure 3).
Some of the intermediate-term indicators seem ready to capitulate and issue buys, but the overall picture is far from "all clear" at this point. Despite recurring volatility, $SPX has traded in a new range in the last couple of weeks -- 1870 to 1990.
One of the great things about trading is also one of the worst things – the market can spring things on you that you never saw coming. Even if you were bearish, you certainly didn’t expect this kind of reaction (or if you did, I submit you’ve been bearish for a long time). In volatility trading, surprises can occur as well – and they have done so this time, as well.
