Commentary--Lawrence McMillan for Friday, November 17th, 2000.....
optionstrategist.com
Stock Market
The market seems to have stabilized, led mostly by Tuesday's big rally from an oversold condition. Breadth has improved and the put-call ratios are at historically high levels. These are positive signs.
On the negative side, though, is the fact that the equity-only put-call ratios are wobbling around sort of undecided whether they want to give a clear buy signal or not. These put-call ratios reversed to a "sell" as of Wednesday's close. Thursday's put-call numbers were more constructive and the ratios appear to be headed back to a "buy" again.
Obviously, the put-call ratios, like many other sentiment indicators, are showing very extreme readings after the activity of the last few days(although our oscillator, strangely enough, never reached oversold territory). This means that the eventual outcome will be a good buy signal, but we're not rushing into a broad market "buy" right now. Perhaps if $OEX closes above resistance at 740, that will bring the indicators into line as well and therefore signal an "all clear."
More problematic is the fact that higher numbers by the equity-only ratios would constitute sell signals. There is always the possibility that we'll have another serious bout of selling, setting up even more oversold conditions before the next buy signal arrives. I would be more inclined to take this bearish tack if the oscillator were to close below minus 200, but it's not in immediate danger of doing that (it currently stands at +9).
Overall, this market action could be fairly typical of an ongoing bear market where oversold conditions arise one after another generating sharp, but short-term bursts of upside activity only to be followed by more selling.
So we'll let price and breadth be our short- term guide: preferring to remain neutral unless:
1) $OEX closes above 740, which would turn us bullish, or
2) the oscillator falls below -200, which would turn us short-term bearish.<<< |
