Opinion: Stock-market bulls are in control — but what a tight range
The S&P 500 index continued to trade at new all-time highs through Sept. 2, but has faltered a bit after Labor Day (in particular, after the unemployment report on Sept. 3). Still the trend of the SPX
SPX,
chart is positive in that it remains above support and the moving averages are rising.
The advance since the last correction of any significance in mid-August has been strong and swift. That’s the good news. The bad news is that the only verified support level – at 4370 – is well below current prices. There might be support near 4460, but it has not been tested. For now, there is resistance at the all-time highs at 4545.
Looking at closing prices only, SPX has wound down into a very tight range between 4509 and 4536. A breakout from there might generate some short-term momentum. Meanwhile, the narrowness of this closing price range has reduced the S&P’s realized volatility (the 20-day historical volatility, HV20) to 7%, which is a very overbought level.
But markets can remain overbought for long periods. It would only become worrisome if HV20 rises above 10%. That would be a sell signal.
Despite this decrease in HV20, and the concomitant constriction of the “modified Bollinger Bands” toward the rising 20-day Moving Average of SPX, SPX has still not touched either of the +/-4σ Bands since early July. That means that the MVB sell signal from back then is still in place.
Lawrence McMillan
Equity-only put-call ratios have improved. The standard ratio is clearly on a buy signal, meaning that it is declining. There has been relatively heavy call buying – especially in terms of volume – since those lows in mid-August.
The weighted ratio is not so clear. It is below its recent highs, but only moving sideways. The computer programs that we use to analyze these charts are still “saying” that the weighted ratio is on a sell signal. To the naked eye, though, it does not look that way. Hence, the question mark on the chart.
What this is telling us is that while the volume of call buying is heavy, not that many dollars are being spent on those calls. Hence the standard ratio looks much more bullish than the weighted ratio.
Lawrence McMillan
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