The stock market has found itself under increasing pressure again this week, and once again seems to have found support at 1600. It is also clear that 1650 is resistance and $SPX is trading wildly and with great volatility in between those two levels.
Equity-only put-call ratios have remained solidly on sell signals throughout. Even on days when the market has rallied, there has been considerable put buying.
Market breadth indicators are currently mixed.
The feature article discusses the fact that stocks, bonds, and the U.S. Dollar have all been declining together. A hedged position is recommended in Bonds vs. the Dollar.
The $VIX spike peak buy signal was stopped out, but another may be setting up (page 4).
There are times when stocks and bonds move in the same direction, and times when they move in opposite direction. However, the U.S. dollar almost always moves opposite to bonds. Yet, in the last few weeks – ever since stocks topped out – all three markets are under pressure. This is creating a very unusual situation, both in terms of sentiment and probably in terms of economics, as well.
The failure of the market to follow through Monday on Thursday and Friday’s strong gains resulted in a pretty nasty day on Tuesday. Breadth was terrible, volatility rose sharply, and $SPX retreated to the support near 1620. Overnight, S&P futures are up about 7 points, so it appears that the 1620-1650 range is containing prices for the near term. A breakout from there could generate some momentum in the direction of the breakout.
The pressure on the stock market increased again this week, driving the Standard & Poors 500 Index ($SPX) down through some support levels, and generally turning almost all of our indicators to sell signals.
The next support level for $SPX -- at 1600 -- is the extremely important one, and that held today. There is now resistance at 1625-1635.
Equity-only put-call ratios are strongly on sell signals. They are now trending upwards, which is bearish for the market.
Stocks sold off almost all day Wednesday. This did a lot of additional technical damage. Specifically, $SPX closed below the 1625-1635 support area and now that means the 1600 level is the next support. 1600 was a double top back in April, and when $SPX broke upward through there in early May, it set off the wild buying spree that carried the market straight upu to 1690. Thus it is quite important.
Neutrality, as it applies to option positions, means that one is non-committal with respect to at least one of the factors that influence an option's price. This isn't quite the same neutrality that governments display -- theirs being a much more diplomatic undertaking -- but it is a viable approach to trading options. Simply put, this means that one can design an option position in which he may be able to profit, no matter which way the underlying security moves.
Since stocks started to stumble last week, volatility has increased and a number of indicators have begun to look more negative.
The chart of SPX is still bullish, though. This week's low was 1640, and that is the first support level. There is also support in the 1625-1635 area, as well as at the still-rising 20-day moving average (near 1635).
Equity-only put-call ratios have started to roll over to possible sell signals.
The “collar” is an interesting and useful strategy – at times. This might be one of those times. With many high-yielding stocks having risen to dizzying heights, holders of those stocks may be somewhat leery of the gains that have taken place, but might also not be willing to sell the stocks because of the capital gains taxes that might be due on long-term holdings at low cost bases.
