The broad market is rather schizophrenic right now. On Friday, the prevailing attitude seemed to be “I better buy now before Congress settles this thing and the market explodes.” On Monday, it was more like “I better sell now, because I’ll be able to buy later as this thing drags on” (“This thing” being the Congressional deadlock over the budget and the debt ceiling).
The market is getting more volatile and bearish as the combined pressures weigh upon it. These include the Congressional wranglings, the negative seasonality of early October, and the technical deterioration of our indicators.
The Standard & Poors 500 Index ($SPX) has support at 1660-1670 and at 1630 below that. There is resistance at 1730.
The feature article goes into some depth as to what an overbought condition actually means. In most cases, a severely overbought market does not generate a sell signal right away (and neither does a severely oversold market generate a buy signal immediately). The most overbought and oversold dates in history are included in the article.
$SPX now has resistance at the mid-September highs of 1730. There is support at 1680, 1660, and then at the August lows of 1630. This week, $SPX generated a sell signal, based on a recent overbought condition.That is one of the few confirmed sell signals.
One of our signature sayings is “Overbought does not mean ‘sell’.” But what does it mean? In this article we’re going to explore the most common overbought condition that occurs in our indicators – those of the breadth oscillators.
$SPX exploded to the upside after the Fed's announcement that they were not going to taper, with both new buying and short covering entering into the fray. With $SPX now at new all-time highs, it has positive momentum, but is also extremely overbought. This latter condition will eventually lead to some sell signals, but perhaps not right away.
The Fed’s announcement that they were not going to taper was a big sigh of relief for many traders, and the resulting buying explosion was powerful. Short covering was certainly prevalent as well. $SPX and other major indices blasted through to new all-time highs. In doing so, there were a number of overbought conditions that were triggered, but on such a powerful breakout, an overbought condition is actually conducive to higher prices – for a while.
Larry McMillan's CNBC Fed Survey grade was noted on CNBC yesterday. When disccussing the analysts that gave Ben Bernanke's term a negative grade, senior economics reporter Steve Liesman mentioned McMillan's "D" and quoted Larry as saying "this will be his grade in retrospect when the full effect of [Bernanke's] policies becomes known." Watch the video below:
This week’s feature article is a continuation of the one in the last issue. Here, we describe option strategies that are similar to owning stock, or are at least a way to reduce time value exposure, while still retaining some leverage in a speculative position.
What first appeared to be an oversold rally gathered so much steam that it has negated our previously bearish outlook (see indicator review, page 6).
$SPX made a strong upside push this week and that closed the downside gap from nearly a month ago. That officially terminated the "bearish" status of the $SPX chart. It's hard to say that the chart has turned bullish, though, since there is still overhead resistance at 1700- 1710. Underneath, there is support at 1660 and then stronger support at 1630-1640.
