The Standard & Poor’s 500 Index and virtually every other major index broke out to new post-2008 highs (and some to new all-time highs) in the past few weeks. But as is always the case, the euphoria and momentum of buying produced some extremely overbought conditions. Those need to be worked off before the market can move higher, and thus a correction is at hand.
Once again, as we enter another earnings reporting season, we are seeing some large moves by individual stocks and perhaps even larger anticipation of moves by the option markets in advance of the earnings announcement. This was a topic of much discussion at the just-concluded 3 Gurus Webinar over the past two days. Because of that interest, we thought the subject is apropos as the feature article this week. In this article, we're going to review the strategies that are often recommended in this newsletter.
The market broke out to new 2011 highs this week. Some of these indices are actually making new all-time highs, having exceeded their 2007 peaks. The chart of $SPX now has a new bull market trend line, connecting the August and March lows. The breakout over the old highs in the 1340 area could measure targets to nearly 1400 on this move.
Equity-only put-call ratios have remained on buy signals for some time now.
Breadth has been strong of late, and both breadth indicators are in overbought territory.
The market has finally broken out to the upside — sort of. The Standard & Poor’s 500 Index finally made a new 2011 high, at last joining the Dow Jones Industrial Average, Value Line, Nasdaq 100, DJ Transports, DJ Utilities, Nasdaq Composite, and the NYSE Index, among others. The Russell 2000 is not quite at a new high, but it’s close.
The 3 Gurus Global Webinar starts tomorrow and Larry McMillan has announced his topic, "Option Strategies That Are Working Now." The following questions will be answered during his presentation:
After a severe scare on Monday, which I label the "Emperor has no clothes" decline, the market has responded well, due in large part to some positive earnings report. Now the problem -- if there is one -- is the resistance from the February and April tops in the 1340-1345 area. Another failure at this level would be quite bearish.
Equity-only put-call ratios have remained bullish, even with the selling that occurred last week.
It has been an interesting week. On Monday, we had what I like to call the “emperor has no clothes” selloff. Seriously, to whom is it news that the U.S. financial situation is a mess? Apparently, it was to some, as Standard & Poor’s placing of the U.S. debt on “credit watch” spurred massive selling. However, somewhere on the way to financial collapse, the bears ran out of gas. That day, the S&P 500 Index SPX +1.35% rallied to close above 1,300, putting in a bottom for the day at 1,295.
Larry McMillan sat down with Expiring Monthly: The Option Traders Journal's Mark Sebastian for their April Issue and discussed option education, technical analysis, and where volatility is headed. Visit ExpiringMonthly.com to subscribe to the magazine and read the interview.
This morning, the $VIX April futures settled at 14.86, the lowest futures expiration since June of 2007 which was near the end of the last bull market. The $VIX index also opened this morning at a recent low of 14.31. Even though this might be considered overbought, with $VIX trending lower the market remains bullish.
From the floor of the CBOE, OptionMonster and TradeMontster founder Jon Najarian discusses why you should attend The Three Gurus Webinar featuring Fari Hamzei, Price Headley, and Larry McMillan on April 26-27th. See the video below and sign up today.