Stock Market
optionstrategist.com
The Fed's intervention on Wednesday made a lot of bullish indicators look a lot better, because without that it seemed that the market was destined to begin the year with a rather nasty downturn. Our major indicators remain bullish, and they'll take any help from the Fed that they can get. The same put-calls as last week are still bullish: both the normal and weighted equity-only ratio, the $OEX weighted ratio, and the $NDX weighted ratio. Meanwhile, both versions of the S&P 500 futures option put-call ratio are oversold and are on the verge of turning bullish, too.
Perhaps an even stronger statement is being made by market breadth. We have seen over 2000 advancing issues four times recently, and each time there has been over 1000 net advances over declines. This strong breadth has pushed our oscillator up to +402, one of its most overbought readings in history. However, we consider this bullish (even though the oscillator's overbought) because an emerging strong bull move usually becomes overbought right away. That's what's happened each of the other five times in the last 30 years that the oscillator has risen above +400. The one potential matter for concern is that in each of the five previous cases, market breadth had previously been quite oversold before turning around and exploding when the rally got underway. That is not the case now, as the oscillator hasn't really been oversold since last October.
One other somewhat bullish factor is that the CBOE's Volatility Index ($VIX) has finally dropped below the 30 level, and it appears to be reversing its intermediate-term rising trend. In general, when $VIX is falling either on the short term or on a more intermediate-term basis that is bullish for the market overall.
I had said in late December that I thought a retest was needed of the bottom reached on December 20th just before Christmas. It seems as if last Monday's nasty decline on the first day of the new year may have been the retest. We won't know for certain, of course, until more time has passed, but the fact that we exceeded the highs of the post-Christmas rally is a good sign. |
