The $SPX chart remains bearish after having broken down through 1950. $SPX sliced right through the next support level at 1925, and after temporarily holding at 1915, appears ready to test the major support level at 1900.
Equity-only put-call ratios remain on sell signals (see Figures 2 & 3). They are both rising steadily, and as long as they are trending higher, that is negative for stocks.
I want to spend just a moment pointing out how these market tops can unfold. One good example was in 2007. The market had just made new all-time highs in July and everything seemed wonderful. Volatility had been low (except for one hiccup back in February, 2007), but no one seemed worried. Then, $SPX broke down sharply with a 30-point down day (yesterday was a 40-point down day for $SPX), and that unleashed the bears.
The genie is now out of the bottle, and it's going to be very hard to put him back in again. $SPX has broken major support at 1950, and that changes things: the chart of $SPX is no longer bullish; it is now bearish.
Equity-only put-call charts continue to remain on sell signals. These put-call ratios will remain bearish until they roll over and begin to trend downwards. It doesn't appear that will happen anytime soon.
Wednesday was a volatile day, with prices swinging back and forth several times during the day. However, by the time that the dust settled, $SPX was virtually unchanged. This is typical of the way that the market has been behaving recently. In fact, if one takes a “neutral” look at the $SPX chart, it is possible to see a trading range, between roughly 1950 and 1980, over the past month.
We follow four main indicators, and they usually guide us in the correct direction of the markets. As noted elsewhere in this issue, price is the most important indicator of all (in this case, the price of the Standard & Poors 500 Index [$SPX]). However, the others – equity-only put-call ratios, market breadth, and volatility indices – are important, too. Usually, we want confirmation from price before acting on opposing signals from the other areas.
$SPX has now traded at a new all-time intraday high for the last three days, and it closed at a new all-time high the last two. Those new highs have been confirmed by some of the other indicators, but some are still on sell signals. $SPX has support at 1950, and that has proven to be very strong.
Equity-only put-call ratios remain on sell signals. They have been steadily rising for nearly two weeks.
This week’s feature article is a bit longer than usual, but with volatility at such low levels, and so many traders and media talking about it, I wanted to describe how volatility hedged positions should be viewed.
For the first time in a while, some sell signals are beginning to creep into our indicators, and the broad stock market is selling off. So far, the damage has been controlled, but Thursday's sharply down opening shows that there is the potential for some heavy selling if there is perceived danger. $SPX has support at 1950 and 1925, and even at 1900 below that.
Equity-only put-call ratios are in agreement, and they are both on sell signals.
The market finally suffered some selling yesterday. This didn’t cause any more of our indicators to turn negative, but breadth indicators are getting close. Even so, we have enough sell signals in place to call for at least a short-term correction. One of the more bullish things, though, is that the parade of “analysts” on CNBC is uniformly bearish. This includes a number who are perma-bulls for the most part; but now they are calling for a correction.
$SPX is once again making new all-time highs. $SPX now has support at or near the 1950 area, which was the low of the most recent "correction." Below that there is support at 1925, where $SPX bottomed last week. The major support is at 1900, where a lot of work was done between March and May.
