This is the weekly update from Larry McMillan Option Strategist. This video explains his use of the indicators described.
$SPX failed to capitalize on its upside breakout above 950 last week. Ever since, the index has been on the defensive. To make matters worse for the bulls, nearly all of our technical indicators have generated sell signals. Recently, the $SPX breakdown below 930 confirms that last week’s upside breakout was a false one and raises the possibility that the lower end of the trading range, near 880, will now be tested.
SPX Price Chart 6-19-2009
The $SPX chart is neutral, with strong support at 880 and strong resistance at 950. There are some who claim that the chart has turned negative with this week’s decline, but that isn’t the way we are viewing it. Rather, the false upside breakout has merely returned $SPX’s classification to “trading range” from “bullish.” However, if 880 is violated on the downside, that will clearly be bearish. Meanwhile, adroit traders can attempt to trade within the range — buy near the lows and sell near the highs.
Put Call Ratio 6-19-2009
Weighted Put Call Ratio 6-19-2009
The equity-only put-call ratios have confirmed their recent sell signals, and the ratios are now moving higher on their charts. These sell signals emanated from quite low levels (i.e., from extreme “overbought” conditions) and thus have quite a bit of room to run if they so desire.
Market breadth has worsened. The heavily overbought conditions that existed in the breadth indicators after an unprecedented amount of time in overbought status (almost 2-1/2 months) have been alleviated. But these breadth indicators have now generated sell signals.
VIX 6-19-2009
Volatility indices have also generated sell signals in that they have risen above their 20-day moving averages and have also broken through downtrend lines on their charts. Those are both bearish developments.
In summary, the indicators are painting a more dire picture than is the chart of $SPX itself, and we always place a great deal of importance on prices because they are the final arbiter. In either case, bullish positions are no longer warranted.
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