Commentary--Lawrence McMillan for Thursday, October 19th, 2000...
optionstrategist.com
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Edited for emphasis and ease of reading.
>>>Stock Market:
All of our indicators registered extreme oversold readings this week some of them historic.
First, the equity-only put-call ratio has risen to levels not seen since 1987.
This includes both the weighted and normal ratios.
The $OEX weighted put-call ratio is in the same state.
They are more oversold than at the 1998 bottom, during the Russian debit crisis and the Long-Term Capital crisis.
The S&P 500 futures option put-call ratios are not at historic levels, but are in oversold territory.
A few of the put-call ratios have already turned to buys, including the NASDAQ-100 ($NDX) weighted and normal ratios.
Even the QQQ weighted ratio is rolling over to a buy.
The oscillator reached as low as -494 on Thursday's close.
Thus, it is also very oversold, but not close to a buy signal yet (a buy signal occurs when the oscillator closes above -180).
With Thursday's action figured in, the oscillator stands at about -341.
Thus, it probably won't give an "official" buy signal until Monday at the earliest.
Finally, the Volatility Index ($VIX) has declined sharply from its peak, and that constitutes a buy signal.
All in all, this is unfolding about as one would expect: a deeply oversold condition, heavy with pessimism, gives rise to a big rally out of nowhere.
We expect this rally to be of intermediate-term duration (several months), so missing the bottom by a couple of days isn't all that significant.
However, this doesn't mean a retest of the lows won't be necessary.
In 1998, especially, there was a sharp rally followed by lower lows before the actual bottom was in place.
Nevertheless, it seems that some broad market bullish positions can be taken now, and added to when the buy signals actually fall into place.<<< |
