Commentary--Lawrence McMillan for Thursday, August 17, 2000...
optionstrategist.com
Edited for ease of reading.
Stock Market:
Our oscillator became overbought, rising above +200, last Friday. When that occurs, all bearish positions are terminated and the next sell signal is awaited. A sell signal will occur when the oscillator falls below +180. The oscillator has remained above sell signal levels ever since, closing tonight (Thursday) at about +220.
Do not anticipate the sell signal, for that can be dangerous if the market makes a push upward into more deeply overbought territory. The last three sell signals from the oscillator have all generated tradable sell signals, and we suspect the next one will, too.
The CBOE's Volatility Index ($VIX) has dropped to its lowest levels since last fall. This is typically an indication that traders are complacent and therefore by contrary theory the market is ready to explode. History has shown that the explosion can occur in either direction, up or down. It is also typically a good time to buy straddles.
Meanwhile, none of the put-call ratios has generated buy signals. This is somewhat surprising, but then the market is always doing something surprising.
It is unclear how all of this will resolve itself, but it seems that there has been a fairly large amount of put buying the market for some time, so that the next signals from the equity-only put-call ratios (and other related measures) might actually be buy signals. This would potentially be at odds with the oscillator, but we can't control the indicators, we can only report and interpret them.
So for now, avoid bearish broad market positions unless the oscillator gives a sell signal.<<< |
