When $SPX broke down through the 2090 support level, that was a very negative sign, especially since stocks failed at the old highs.
There is now strong resistance at 2110-2120 (the February and March peaks), as well as at 2090 (again). As for support, the initial support level will be 2040, the early March lows. Below that, there is support at 1970-1990, which is the area of the December and January lows.
Everyone is aware of the fact that stocks gap sharply on certain news events – primarily earnings reports and, for biotechs, FDA-related news. Other events, such as lawsuit verdicts or settlements, can cause gap moves, too. Option traders are aware of the potential of these events, especially when the timing of the event can be determined with some certainty.
In figure 1, the support at 2040 and the resistance at the recent all-time highs of 2120 are marked as a trading range. Until $SPX breaks out of that range, it really doesn't have a trend in place. To support that conclusion, the indicators are somewhat mixed.
Equity-only put-call ratios have remained on sell signals during this latest rally.
The U.S. Dollar has been getting a lot of press lately as it has nearly gone parabolic with a huge rally on top of an already long-term rally. Optimism is rampant, and bears are cowed. This is likely a good time to lay out a plan for a trade on the short side.
When the U.S Dollar moves, it often affects the price of many other things, especially commodities. Of course, other currencies move in the opposite direction to the dollar, since we – as U.S. citizens – tend to view everything in dollar terms.
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The market, as measured by the Standard & Poors 500 Index ($SPX), had been laboring at new highs, near 2120. Then, last Friday it broke down below support at 2090, which turned the chart bearish.
Equity-only put ratios curled upwards late last week and gave confirmed sell signals on both the weighted and standard ratios. See Figures 2 and 3.
We usually try to run an article on this subject at least once during tax season. I realize that not everyone is aware of the rules governing Section 1256 contracts. Hence, since tax season is upon us, I thought this review might be of benefit to some of our subscribers – and to options and futures traders, in general.
Ivers Riley, a long-term friend and business associate, died February 17th at his home in Savannah, Georgia. I met Ivers in the early 1980's when he was a cofounder of The Options Group – a consulting firm specializing in all the “new” forms of options that existed at that time (currency options and index futures, primarily, as I recall).
The market has gone dull after making new all-time highs. The chart of $SPX remains bullish, in that it remains above support.
Equity-only put-call ratios remain bullish as well. They continue to decline on their charts, yet they are not so low as to be considered overbought.
Market breadth has been a problem for some time now. Both breadth oscillators rolled over to sell signals this week, and both remain there at this time.
