The market took a beating yesterday, as $SPX finally got in line with the indicators, most of which had turned bearish in the last week or so. $SPX closed just below 2040, which technically is a violation of the previous trading range (2040-2135). However, as you can see from the chart in Figure 1, it's still in the general area of the low of the range. If prices should rally from here, we would certainly say that the trading range has held.
This is an article about Apple, but in a more general sense it is an article about whether the “modified Bollinger Band” system can be applied to stock charts.
It seems that no matter what happens -- technically, fundamentally, or volatility-wise -- $SPX remains trapped in its now-six-month-long trading range. Hence the $SPX chart is neutral.
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The stock market continues to hover in its trading range. Despite some promising buy signals from sentiment extremes in put-call ratios and $VIX, there was no follow-through by the Standard & Poors 500 Index ($SPX). We have often said -- and still maintain -- that price is the most important indicator. Regardless, as long as $SPX remains in the broad 2040-2135 trading range, the chart is neutral.
We have been operating an event-driven straddle buying strategy in advance of earnings for several months now, with mostly favorable results. However, this week something happened that we haven’t seen before: the straddles increased greatly in value before the earnings were announced.
The chart of $SPX is the least bullish of the indicators. SPX remains in the 2040-2135 trading range that has bound it for most of this year. Basically this is a neutral chart.
Put-call ratios are much more encouraging. A strong buy signal has been generated by the standard put-call ratio (Figure 2). The weighted equity-only put-call ratio is also bullish (Figure 3).
Market breadth remains mixed, with the NYSE-based indicator now on a buy signal, but the "stocks only" is not.
Lawrence G. McMillan's market classic, Options as a Strategic Investment, was recently listed as one of the top five option trading books by The Option Prophet's Adam Beaty. He writes:
If you could only pick one book from this list to buy this would be the one you need to get. At over 1000 pages this book will be your option trading bible...
Read the entire review by visiting The Option Prophet.
With this issue, we attempted to return to the normal publishing schedule – the 2nd and 4th Thursdays of the month. However, due to some scheduling issues, the full newsletter was not available until Sunday, July 26th, although the Hotline was published on time on Friday, July 24th.
