Important indicators other than fundamentals, ma's, trend-lines that market mavens follow and worry about.. like why the put call ratio shows extreme bullishness and why is the VIX so low.. and Rydex ratio is showing record levels of bullish expectations and are extremely negative.. read on and see my little observation in the end..it is important to keep an open mind and read the reports with an enquiring mind, one may be wrong but innovative skills is the name of the game Zain.. The gambling side of the valuation and description of why we are having a low VIX and very high optimism or low number of puts needs to be explained otherwise we are at a brink of sell off..
DJIA and S&P Closed Mid-range
By Larry Katz, Financial Analyst
Market Summary & Forecast
Posted Friday, September 01, 2000 at 07:12 AM EST
The DJIA and the S&P closed higher but sold off rather sharply late in the session and closed about mid range. The selling may have been related to end of quarter activity but the late weakness and mid range close was a slight negative. The NASDAQ averages closed much closer to the highs. The session was marked by a fairly sharp rise in volume as it moved over the one billion share level for the first time in over three weeks. Expanding volume on rallies is most often times bullish. However, s my friend Steve Todd of the Todd Market Forecast pointed out that when volume expands after a rally has been in place for a while, and the current one is over a month old, it could indicate distribution. Breadth, meanwhile was OK but nothing spectacular. The new highs did expand and challenged the levels seen in mid August and the new lows eased a bit. The tape is neutral.
The breadth and volume oscillators are neutral but are also showing severe divergences. The McClellan oscillator moved back to near the zero line and is at a very important juncture, which should resolve in the next day or two. The Arms indexes are also neutral. The 13-day RSI discussed yesterday is still diverging as it failed to confirm the new highs in both the S&P and NYSE Composite. The CBOE put to call ratio moved down sharply yesterday reaching very excessive levels. The volatility index (VIX is close to where it was on Monday and near its July 1999 peak. It is showing a very large degree of complacency. Last but not least, the Rydex ratios are showing record levels of bullish expectations and are extremely negative.
Short-term sentiment indicators are at extreme levels of optimism. The Rydex ratio is above where it was at the March, June and July peaks. In March the indicator peaked about a week after the top. In June it peaked a week before the top and in July it peaked commensurate with the top. While we may not be there yet the message from these indicators are clear, we are at a very high- risk point in the market for the short-term. Add to the equation a weakening momentum backdrop and a sloppy wave structure and the ingredients remain in place for a short-term to complete at any time. Deciding where to stand for the short-term is a different matter altogether.
The technical evidence continues to say stay bearish. However, the next few days leading up to and just following the Labor Day holiday tend to have a positive bias as do the first few trading days of a new month. Risk is undoubtedly high on a near-term basis and I see the strong possibility of a good-sized decline getting underway at any time but see enough to favor some further upside over the short-term an as such I am moving back to neutral for the short-term. Medium-term I am still bullish and long-term still bearish. Yesterday I stated that the bonds were oversold on a very short-term basis and expected a rally of some sort. I did not expect as big a rally as we got, however as prices moved back to the area of last weeks high. The indicators remain slightly negative but for now I am moving back to neutral on the short-term and remain neutral on the medium-term. The XAU had a good day but did close off the highs. I moved back to bullish from neutral on the short-term during the mid morning hotline. I remain bullish on the medium and long-term.
My comments Zain are……...
VIX, Put call ratio and Rydex indicators represent a classic understanding that market climbs on the wall of worry, this is the argument even i have used at Nasdaq 1`000 in 97 and at 3000 in 2000 very recently when we made as case of rebound. The only thing that these guys miss is the 'mix of the rally' or the quality of breadth of the market. This last 5 year leg is based on 'winner takes it all' kind of NDX led rallies. The little difference this time around is that this is not a NDX led breakout that is CSCO's and MSFT's of he world are not leading the market higher, the evidence is that although SPU is making near new high NDX and Comp are still 12-14% lower from highs made previously. The two points to consider and think about are..
1- DJU, look at the utilities index on 3/28 when we made a new high on NDX at 4700 plus this was making a near low at 284, now utilities is in breakout pattern at 364 and NDX still stuck below 4100 a cool 615 points below the high, now utilities are proxy for the markets interest rate direction, the peak generally determines the end of 'hikes' by Fed, look at 95 and you will notice that, although as a stock index it has represented the highest yielding stocks between 6-9 P/E's its higher now, what is happening in utilities points to reason of low volatility or VIX. The sector is still bid on its own merits if it would be rising on interest rate direction worries the bond yield should have not been dropping.. look at these charts..
finance.yahoo.com^TYX&d=2ym
finance.yahoo.com
The market even for mavens is a simple phenomenon, it is not, we need to think a little more deeper than surface, always to be a good analyst, question the points raised and you will find the differences in circumstances that would explain the rally now, even the near double bottom of yield is signaling a broader rally if we break this 5.50 yield.
The reason is simple stocks like ENE have turned out to be a new and old economy stock and with sectors like utilities bid we have higher distribution huge breadth and higher volumes late in the rally, near all the worries can be answered so for us it is important to move the stop profit higher to 1092 on SOX and 492 on IIX with 3890 on NDX. Keep playing this market with higher stop profits and don't get intimidated by the calls of mavens such as one I have posted to you, think independently and keep questioning that is the thing to succeed.
2-Yesterday very quietly OEX that S&P 100 made a pass to break inter day high of 3/27 at 835 it hit 834 and closed around that level, now OEX is not a tech laden index but like S&P 500 more widely represented index that making a new high explains the ground realities that have changed it has in previously rallies lagged NDX whereas now it is leading that alone would explain why the 'bullish expectations' are so high, what is happening is that like last five years NDX and Comp kept moving and most of the people missed the boat glued to DOW this time exactly opposite as un-sexy sectors made a break through and kept the jey indicators masked.
Now new realities of 'breadth' where indexes RUT like indexes along with BKX OSX BTK and even DDX are contributing to the rally the VIX can stay low, the reason of low number of puts is the fact why should one buy puts on stocks like MSFT which are already self corrected, at 120 a 90 put could be a safe bet, like wise NOK TXN and CSCO. IIX NDX COMP DOT trading needs higher protection due to higher volatility of these indexes, a market led by these indexes will certainly have higher put call ratio and needs to climb the wall of worry due to valuation models which we construct to accord value to stocks however when we see broader participation we may see VIX Put/Call ratio, weakening momentum backdrop, a sloppy wave structure and
the technical evidence continues to say stay bearish. That would not worry me, I would keep looking at the SPU or SPX and OEX which are punching or about to breakout.. |
