The rally that began two weeks ago, with an upside gap move on October 11th, continues but almost in slow motion.
We should have some resolution fairly soon as to whether this market is ready for a breakout to new highs or a return to the old trading range.
Equity-only put-call ratios remain on the buy signals that were generated a little over a week ago. Neither buy signal arose from a particularly high point on the put-call ratio chart, so they weren't the strongest of signals.
Stocks have generally reacted favorably ever since the oversold "washout" on October 3rd (or maybe you prefer the other one, on October 8th). Those created oversold conditions that have spurred buying, along with somewhat positive news on the China trade front. However, there are a couple of things that keep this chart from being all-out bullish.
McMillan Analysis Corp. president Larry McMillan was recently intereviewd on Chuck Jaffe's Money Life podcast where he explored the current state of our option-oriented indicators and discussed the current market environment.
Listen below or click here:
Violent market movements have followed nearly every piece There are both bearish and bullish signals in place, although the bears are being put to the test today.
The major indices all broke down this week, as the accumulated pressure that had been building up finally was released after a poor economic survey. There is resistance at the old highs (3020-3025) and now at 2940, where the breakdown took place. There is support at 2825, and then at 2720.
Both equity-only put-call ratios rolled over to sell signals. They are now trending higher and, as long as that is the case, these sell signals will remain in place.
..The equity-only put-call ratios have both rolled over to sell signals. As we have pointed out, the standard ratio started moving higher a few days ago, but the weighted ratio just turned upward in the past two days. The computer analysis programs did not confirm sell signals from either ratio until after the close on October 2nd. So, these are “fresh” sell signals. The computer analysis was influenced by the fact that some rather large numbers were coming off the 21-day moving averages of these ratios, but as it turned out even larger numbers came onto the averages, and they rose anyway – eventually setting off these sell signals...
Stocks have struggled a bit over the past week, but not to any great extent. Support has held in the 2950-2960 range. That has preserved the bullish gap on the chart that extends down to major support at 2940. If $SPX were to close below 2940, that would be a direction-changer, from bullish to bearish. But so far, it hasn't even been tested.
It turns out that the strange behavior in $VIX9D on Monday, when it was down –4.85 while $VIX and other CBOE Volatility Indices, as well as $SPX, were relatively unchanged was due to a computer malfunction at the CBOE. Yesterday morning, when the market was still rather stable, $VIX9D was up almost 4 points, with $VIX again relatively unchanged; the computer error had been corrected. I don’t know if there well be an updating of the Monday prices for $VIX9D, but probably not. So, anyone using $VIX9D as an indicator or as part of a trading system should be aware that Monday’s prices were erroneous...
Yesterday, the 9-day Vol Index dropped from 14.68 to 9.83! This was not some arithmetic quirk with expiring options or a holiday or anything like that. This was a true drop in the price of near-term $SPX options. $VIX9D is based on the Sept 27th and Oct 4th expirations. $SPX was essentially unchanged yesterday (down 23 cents). Here is what happened to the at-the-money put – the 2990 strike:
Once $SPX broke out over resistance at 2940, especially considering that it was a strong gap breakout, it has not looked back. There was a slight consolidation in the 2960-2980 range, and now the Index is apparently on its way to challenge the all-time highs at 3025. The chart will be bullish as long as $SPX continues to close above 2940.
Equity-only put-call ratios continue to drop and thus they remain on the buy signals that were generated in late August.
