Lawrence G. McMillan’s – THE OPTION STRATEGIST – FREE WEEKLY UPDATER

By Lawrence McMillan

The oversold conditions that existed last week generated a strong week-long rally. The move above 2100 was constructive, but the chart won’t really turn bullish until new highs are made and held. That would require a move above 2135.

Put buying has remained relatively heavy, despite the rally. As a result, the equity-only put-call ratios remain in an uptrend and thus remain on sell signals.

Currently both breadth oscillators are clinging to buy signals. During this rally, we have literally seen a collapse in volatility.

$VIX fell from 20 to 12m while $VXST fell from 22 to 10. Those are huge moves. These moves, along with the reinstatement of an upward-sloping term structure, return the volatility complex to a completely bullish state.
In summary, $SPX has now reached the stop of the trading range, more or less.

Can buy signals from put-call ratios overcome lackluster breadth readings and an overbought $VIX? I would think not, but only time will tell.

For now, we consider $SPX to still be in its trading range.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s