Lawrence G. McMillan’s THE OPTION STRATEGIST FREE WEEKLY UPDATER Stock Market Commentary 22nd Jan 2016

By Lawrence G. McMillan

Stocks remain under extreme pressure, but it finally looks like the oversold conditions are starting to have some effect. An oversold rally is now underway.

$SPX bounced off the support level at 1820. That level was also the low of both April and October 2014. In essence, nearly two years of gains — back to April 2014 — had been wiped out at Wednesday’s lows. By the time $SPX reached those levels, the oversold conditions were myriad, and a rally has ensued. We expect this rally to push $SPX up to at least its declining 20-day moving average, which is currently at 1980 and falling.

Equity-only put-call have issued fresh new buy signals within the last two days. This is the first intermediate-term indicator to turn bullish.
Market breadth has been terrible, and both breadth oscillators remain on sell signals, in deeply oversold territory.

Volatility has been — let’s say “interesting.” The trend of $VIX is higher, and that is intermediate-term bearish.

In summary, there are a lot of short-term, oversold indicators turning bullish right now. So a short-term rally seems likely. But the intermediate-term trend is bearish until proven otherwise.

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