Lawrence McMillan' commentary, 1/26/01...
optionstrategist.com
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Rearranged for emphasis & ease of reading.
>>>For Friday, January 26th, 2001
Stock Market
The equity-only put-call ratio:
... buy signals are in effect across the board (a buy signal is a declining line, where put-call ratios are concerned).
Both the normal and the weighted ratios have now declined to about where they were last November, when the last sell signal took place.
However, they seem to have too much momentum to repeat that sell signal.
Rather, given the strength of other indicators such as our oscillator, which continues to remain in overbought territory above +300 we would expect this current bull move to last longer.
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Speaking of the oscillator:
... it is now in the throes of its second-longest stay in overbought territory ever.
The longest occurrence was in 1997:
... after we had a nasty spring selloff,
... the market rallied on strong breadth for months afterwards gaining nearly 1200 Dow points over the course of several months while the oscillator remained above +200.
It certainly appears that a similar situation could be brewing now, as breadth remains very positive day in and day out (fueled by gains in small-cap stocks).
Nothing is certain, of course, but this is the strongest we've seen breadth for this long of a time in quite a while.
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Currently, implied volatility:
... has finally confirmed the bullish signals that we have previously received from both the equity-only put-call ratios and from market breadth (i.e., our oscillator).
The CBOE's Volatility Index ($VIX):
... has broken down below the "stubborn" bottoms of November and December.
... That is, implied volatility is clearly in a downtrend.
... When volatility is trending downward, that is bullish for the market.
Of course:
... we'll be mindful of any upturn in the put-call ratios (which would be a sell signal), but
... for now we want to remain bullish as far as the broad market is concerned.
This seems like the best intermediate-term readings we have had in concert in quite some time.<<< |
