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McMillan Market Commentary 7/23/4


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#1 TTHQ Staff

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Posted 23 July 2004 - 08:21 AM

Stock Market


Bulls are very complacent, and we view that as a major bearish
argument. Not only does $VIX remain low, but in the media, most
analysts talk of dullness or of a trading range, when in reality this
market is accelerating to the downside. They cite bullish news and
positive earnings reports, completely ignoring the fact that the market
has sold off on those supposedly positive items. That sort of market
reaction is typical of a bear market, and thus we feel it will be
necessary for the market to see "capitulation" in the form of massive
oversold readings before this market will be a "buy" again.

In addition, our technical indicators remain on sell signals. The
major indices have all broken below support and below their longer-
term (200-day) moving averages something that usually triggers
institutional selling (and it has done so once again). We are nearing
the yearly lows (Figure 1), but this time we don't have the negative
sentiment readings that we did back in May when a nice rally sprang
forth from this support area. Unless investor sentiment turns quickly
negative, we think the support will not hold this time.

Equity-only put-call ratios remain on sell signals (Figures 2 & 3).
The standard ratio (leftmost chart) has made a new high and thus is
considered oversold. However, the weighted ratio is far less oversold.
Both are still rising and thus are on "sells."

Market breadth has taken on a negative tone as well, and thus
this indicator is a sell signal as well.

Finally, the volatility indices ($VIX and $VXO) remain
stubbornly low. No one is panicking. The last two times that the
market fell to these levels this year, $VIX spiked up above 20.
Currently, $VIX is still below 17, even though $SPX and $OEX are
near their yearly lows. We feel that a move above 17 by $VIX will
trigger another sell signal, perhaps signaling a waterfall wave of
selling in the market before buy signals can be generated.

This market is extremely dangerous, and this is a dangerous time
of the year (August through October). Do not fall asleep! Take
bearish action or at least protect your longs. When the technical
indicators turn bullish, only then will it be time to buy.

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Lawrence G. McMillan
email us at: info@optionstrategist.com
website link: www.OptionStrategist.com


Lawrence G. McMillan is the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 200,000 copies. The fourth edition of this work was just released in March 2002. In addition, his other book, McMillan On Options, was published in October, 1996. He currently authors a unique daily fax service -- Daily Volume Alerts -- which selects short-term stock trades by looking for unusual increases in equity option volume. He also edits and publishes "The Option Strategist", a derivative products newsletter covering equity, index, and futures options, as well as "The Daily Strategist", covering much the same strategies but on a daily basis. In these capacities, he is the President of McMillan Analysis Corporation, which he founded in 1991. He has spoken on option strategies at many seminars and colloquiums in the United States, Canada, and Europe. In addition, he trades his own account actively and manages accounts for others in the option markets.

Lawrence G. McMillan has spoken on option strategies at many seminars and colloquiums in the United States, Canada, and Europe. He is a guest speaker on Bloomberg TV, CNBC and Bloomberg Radio. He also writes regularly for "The Exchange", a publication of Data Broacasting Corp., and authors a weekly columns for WorldlyInvestor.com, and MarketMavens.com. In addition, he trades his own account actively and manages accounts for others in the option markets.

From 1982 to 1989, he was in charge of the Equity Arbitrage Department at Thomson McKinnon Securities, Inc. and then was in charge of the Proprietary Option Trading Department at Prudential-Bache Securities in 1989-90. Before holding those positions, he was the retail option strategist at Thomson McKinnon from 1976 to 1980, and then traded the firm's proprietary account beginning in 1980.

Mr. McMillan holds a B.S. degree in mathematics from Purdue University (1968) and an M.S. in applied mathematics and computer science from the University of Colorado (1972).

McMillan Analysis Corporation, headed by best-selling author Lawrence G. McMillan, has been providing options oriented advice and learning tools since 1990. Mr. McMillan, with over 26 years of option trading experience, is the editor behind all advisories and services published by McMillan Analysis. We offer a wide array of learning and analysis tools for serious traders and option students. We believe an informed and educated trader makes a better client. We strive to make an important difference for our viewers. We think you'll agree, as do many of our clients, that we offer superior options products and services.