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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Saulamanca who wrote (70463)	2/25/2001 10:49:29 PM
From: John Madarasz	Respond to of 99985

For Friday, February 23rd, 2001 ...fear is just starting to build may mean the market has just begun to fall, observes options sage Larry McMillan, of McMillan Analysis. Any rally should be "a one-or two-day wonder. This is a bear market in full force," he contends. The Stock Market The equity-only put-call ratios have rolled over to sell signals. They are now trending higher, and when they are trending higher, that's bearish. The S&P 500 futures options put-call ratios just recently generated sell signals. The $OEX and $NDX weighted put-call ratios remain on sell signals, too. The above sell signals arose from rather high levels on the charts. However, I believe that's just another indication that we are in a bear market. During bear markets, we can expect to see the buy and sell signals arising from much higher levels on the put-call charts than the levels we saw during the bull market. This is why we take a dynamic, not a static, approach in interpreting these charts. A static approach might say something such as "when the put-call ratio moving average hits 55, that's a buy signal." However, you can see how erroneous and costly that would have been over the last six months. In fact, this most recent sell signal which already has to be classified as a "correct" call arose from the 55 level! Therefore, we continue to believe, as we always have, that the dynamic approach identifying buy and sell signals by the change in trend of the moving average of the put-call ratio is the correct approach, for it is not prejudiced about what level the ratio is at when the signals occur. Breadth has deteriorated, too, and the oscillator generated its own sell signal last Friday. The subsequent decline has produced a short-term oversold condition, so a rally may occur. Any rallies, though, can be expected to be very powerful, but very short-lived (one or two days). This is typical of bear market action. Eventually, we will see buy signals again, but it will probably take a complete set-up of the indicators such as we saw in December a volatility peak at high levels of $VIX, a peak in sentiment (put buying), and hopefully a buy signal from the oscillator as well. At the current time, though, those things seem distant. Long index positions should be avoided except for nimble traders attempting to capitalize on short-term overbought conditions optionstrategist.com