but I'm guessing we'll avoid a lengthy recession.>>>
i hope your right, but i'm guessing this will beat the early 90's recession, it already has in a lot of areas
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The Option Strategist HOTLINE
Thursday, November 8th, 2001
Stock Market
Whether it was the Fed's rate cuts or not, the market rallied strongly Tuesday
and Wednesday after those cuts and pushed through to new post-September highs.
That technical breakout is quite bullish. So, as long as prices of the major
indices hold above those breakout levels (or even stay above their 20-day moving
averages), we must remain bullish. That breakout level represents support now.
Those levels are 565-570 for $OEX, 1100-1110 for $SPX, and 36-37 for QQQ. The
Dow hasn't quite completed its breakout over the 9600 level yet, but if it does,
it will have a chart that closely resembles the others. As long as these indices
remain above the afore-mentioned support levels, then we shall remain bullish.
Once again price action is the dominant indicator.
However, the other indicators are important, too, of course. The equity-only
put-call ratios are all trending lower still. That's bullish. There won't be
a sell signal until they roll over and begin to trend higher. That could happen
at any time, of course, but experience has shown that it is best not to try to
anticipate such a change of direction in these put-call ratios. In fact, when
they are near the edge of their graphs as they are now near the bottom of the
graph that is often when some of the strongest moves occur. Nevertheless,
if we are still in a bear market and there is ample evidence to indicate that
we are then it probably won't be long before we get some sell signals. In
essence, they are "overbought."
Other put-call ratios have already begun to generate sell signals. These
include the $OEX weighted ratio, both S&P 500 futures option ratios, the QQQ
weighted ratio, and the NASDAQ-100 ($NDX) weighted ratio.
Finally, there is volatility, as measured by the CBOE's Volatility Index
($VIX). Suffice it to say that it is also in a bullish mode.
The bottom line is that prices are moving higher and that should be respected.
There are no major sell signals yet, although there are some growing overbought
conditions. How far can the rally go? Well, it is about to run into the major
down trend line of the bear market the line that connects the tops of August,
2000, and May, 2001. In $OEX terms, that line is between 585 and 590. So, when
the irresistible force meets the immovable object, what happens? I don't know,
but I'm certain that the indicators will guide us well: if we get sell signals
and the afore-mentioned price support levels are broken, then we'll go short.
Otherwise, we'll stay long our $OEX bull spreads and $DJX straddles. |
