Stocks remain under extreme pressure, but it finally looks like the oversold conditions are starting to have some effect. An oversold rally is now underway.
The fall in the price of $SPX has continued, adding to the worst start of any year -- ever. As a result, there are severe oversold conditions, and buy signals are pending on many fronts. But few buy signals have been confirmed, and markets can continue to decline precipitously while they are oversold.
Recently, the CBOE’s Volatility Index ($VXST) closed above all three of the other CBOE Volatility Indices. At the time, it struck me as being a rather rare occurrence, and it seemed there might be some considerations as to forthcoming market movement. Consequently, a rather extensive study was performed, and indeed a trading system did emerge, as this article will reveal.
The stock market has taken a real beating in the new year. Massive oversold conditions have arisen, and a sharp, but short-lived rally is possible at any time. The larger picture, though, is an intermediate-term bearish one.
$SPX has been down-trending since early December, when the first pattern of lower highs was established. The current pattern of lower highs and lower lows remains intact, and that is bearish.
Usually we make this the topic of a longer article at year-end, but frankly we are not holding positions for anywhere near a year, so this is just a mental exercise – not having a lot to do with our style of trading.
The stock market had been muddling its way through the Santa Claus rally period, and this now looks like it will put the final, negative touches on this seasonally important period.
At this time, the chart of $SPX is bearish, with lower highs and lower lows (see Figure 1). There is support near 2000, where $SPX appears to be headed for a retest very early in the new year.
FXCM is a trading firm that basically blew up when the Swiss Franc was revalued, a year ago. At the time, the stock fell from 17 to nearly zero, before it was rescued by a cash infusion from Leucadia (LUK). In October, 2015, the stock was reverse split, 1-for-10.
Recently, the CBOE’s Volatility Index ($VXST) closed above all three of the other CBOE Volatility Indices. At the time, it struck me as being a rather rare occurrence, and it seemed there might be some considerations as to forthcoming market movement. Consequently, a rather extensive study was performed, and indeed a trading system did emerge, as this article will reveal.
$SPX has now climbed slightly above its declining 20-day moving average, and that is where oversold rallies usually die out. Despite the strength of the last week, $SPX has not even exceeded last week's high, much less the more important peak of early December. It is in a downtrend, with a pattern of lower highs and lower lows.
Stock market volatility continues to be above-average. The oversold rally that took place earlier this week seems to have run out of steam.
The $SPX chart is now showing lower highs and lower lows. That is a bearish trend developing. It will remain in effect until the most recent high is exceeded (2100, in this case).
Both equity-only put-call ratios remain on sell signals.
