By Lawrence G. McMillan
After some relatively heavy, but orderly, selling in the past few weeks, oversold conditions finally reached levels that spawned a sharp oversold rally. But oversold rallies, while often unexpectedly strong, are generally short-lived affairs. There is certainly a good chance that this is the case again this time.
$SPX was able to rally to its declining 20-day moving average. There is further resistance at 1340.
By Lawrence G. McMillan
After some relatively heavy, but orderly, selling in the past few weeks, oversold conditions finally reached levels that spawned today’s sharp oversold rally. But oversold rallies, while often unexpectedly strong, are generally short-lived affairs.
Is that going to be the case again this time, or is the bottom in place? It’s too early to answer that question, but we’ll lay out the criteria as we see them.
By Lawrence G. McMillan
These days, there are more and more volatility indices and futures than ever. One can observe the same sorts of things about them that we do with $VIX futures – in particular, the futures premium and the term structure. We thought it would be an interesting exercise to see how these other markets’ futures constructs compare to that of $VIX. The $VIX construct, for a long time (see chart, page 12) has been that of large futures premiums and a steep upward slope to the term structure.
By Lawrence G. McMillan
The market just cannot get a rally together that is strong enough to erase the oversold conditions. There is now resitance at 1335, where the rally failed this week.
Equity-only put-call ratios continue to plow higher on their charts. They remain on sell signals.
Market breadth has been quite negative, and that is one of the major oversold conditions.
Volatility indices ($VIX and $VXO) have remained stubbornly high. As long as $VIX is above 21, that is bearish for stocks.
By Lawrence G. McMillan
Bond ETF’s (IEF and TLT) are both making all-time highs (in price). Stock volume patterns are very strong. This is the point that all the stock market bulls (especially on CNBC) seem to miss: yes, government bonds are yielding small interest rates, but if you own them, they are rising in price as the yield falls. In the last year, IEF (the Barclays 7 year - 10 year bond ETF) is up 15% in price, and TLT (the 20-year bond ETF) is up 35%!!! So what if they only yield 1.6% and 2.7%, respectively?
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.
