Various indicators have been turning bearish since mid- November. But until this week, $SPX itself had not broken down, and since price is "king," that was quite important. However, now $SPX has broken down, as it has fallen below support at 2050. This completes a bearish pattern, and a full-fledged correction is underway. This could be sharp and short-lived, and since it is taking place late in the calendar year (when seasonal bullishness occurs), that is probably the case.
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The stock market, as measured by the Standard & Poors 500 Index ($SPX), sold off for a couple of days and then rebounded quickly to new all-time intraday and closing highs. However, sell signals and overbought conditions abound, so all is not bullish.
With $SPX making new all-time highs, its chart is bullish, and the trend of the market is higher. Price is the most important indicator. That has not changed.
The feature article discusses a protection technique – collar buying – that is favored by many sophisticated stock owners, including institutional traders.
The stock market, as measured by the Standard & Poors 500 Index ($SPX) continues to march upward at a dizzying pace. The market is overbought, and if $SPX violates support at 2060, we could finally see a correction.
Equity-only put-call ratios remain on buy signals. You can see from Figures 2 and 3 that the ratios are still trending downward. That is bullish.
Both of the breadth indicators remain on buy signals, and they are modestly in overbought territory.
With the stock market at all-time highs, and many stock holders sitting on large gains, thoughts often turn to options as a hedging technique. For stock owners, there are two ways to provide protection to a portfolio: 1) macro protection, which involves the use of index options to hedge a entire portfolio’s risk, or 2) micro protection, which involves the use of individual options on each stock in the portfolio.
The stock market advance is relentless. It has refused to correct for more than a day since bottoming over a month ago and over 230 points lower., but it is up another 12 points in overnight trading as I write this. The chart of $SPX is bullish because it remains in an uptrend.
Equity-only put-call ratios remain on buy signals, as they continue to drop sharply almost daily.
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The fall of the year sees more seasonal trading patterns than the rest of the year. Two more major seasonal trades are discussed in the feature article: the Heating Oil-Gasoline spread, and the Post-Thanksgiving Buy signal. Both have worked well often in the past, although not every year. Recommendations are made for both.
