Ian McAvity – a friend and colleague – passed away suddenly a few weeks ago. Ian was a “gold bug,” technical analyst, and humorist – and first-rate at all of them.
If you ever had a chance to see him talk at one of the technical analysis or precious metals conferences, you would certainly remember his blend of humor, irony, disdain for the government mismanagement, and insightful predictions.
This article was originally featured in the 4/1/16 edition of The Option Strategist Newsletter.
It is worth noting that there has been a lot of discussion in the media about how cheap $VIX is, and these articles then have a bearish connotation for stocks. Two prominent articles appeared in the Striking Price column in Barron’s and on Zerohedge.com. The Zerohedge article covered a lot of interesting things about volatility futures and ETFs, but both of these articles mistakenly asserted that an upward-sloping term structure in the $VIX futures is bearish. I have seen the same opinion expressed many times on CNBC by traders who should know better, although I haven’t seen it there this week.
A couple of weeks ago, we mentioned that the highest “stocks only” breadth oscillator reading in history had taken place. In fact, the top three readings of all time occurred on March 3rd, 4th, and 7th of this month (March, 2016). In addition, the 15th and 17th most extreme readings of all time occurred on March 2nd and March 11th, respectively. We wanted to study the other extreme readings to see what happened after those. Is this a significant longer-term indicator, or is it just indicative of the fact that short-term momentum is strong? The complete "Top 20"
The rally off the February lows continues to make new relative highs. Thus, the $SPX chart remains bullish. Even the corrections are very small, just enough to alleviate overbought conditions.
Equity-only put-call ratios are interesting. The weighted ratio remains on a buy signal, but the standard ratio is in danger of rolling over to a sell signal (see Figure 2).
Market breadth oscillators have remained on buy signals, despite flirting with sell signals early this week.
Stocks continued to rally early this week, creating some overbought conditions. Since then, the upward momentum has been lost, as the market is undergoing a short-term correction to work those off.
Equity-only put-call ratios remain on buy signals, as they generally have continued to decline.
Market breadth has begun to weaken as well. In recent days, breadth has begun to wane. As a result, the breadth oscillators are barely clinging to buy signals.
The recording of Stan Freifeld 's recent "Early Exercise: Strengthen Your Position" webinar is now available for viewing below.
The completion of the powerful, bottoming "W" formation at the beginning of March was the launchpad for this leg of the rally. It has more room to run.
Equity-only put-call ratios continue to remain on buy signals. The standard chart has seen a slight "wiggle" develop this week, but it does not dissuade the computer programs from continuing to say that these ratios are solidly on buy signals.
After the huge rally in the stock market, from the end of World War II to the exhaustive top in 1966, there were three bear markets – each one worse than the one before. They are shown as grey, shaded boxes on the chart below. Once those ended, the market began to rally – eventually culminating in the huge technology boom market of the 1990's. Since then, there have been two bear markets. Is this the beginning of the third?
