Thursday, January 21st, 2010
In the last week, the tenor of the market has changed. For the first
time in quite a while, a day of heavy selling (Wednesday) was followed
by another day of heavy selling.
The decline in $SPX has broken through the trend line extending
back to the March lows (Figure 1). $SPX broke support at 1130, but found
support -- so far -- at the late December lows of 1115. The 1085-1115
area is a rather broad support area, and this initial decline should find
support in that area (even if it declines farther later).
The equity-only put-call ratios have just today rolled over to sell
signals (see Figures 2 and 3). Market breadth indicators are now both on
sell signals as well.
$VIX rose sharply, by 19%, as did other volatility indices. On
the $VIX chart, that is a breakout (see Figure 4). It's way too early to
say the $VIX has established an uptrend, but it has certainly broken the
current downtrend.
In summary, the market has taken a serious shot to the chin.
The previous, unsustainable overbought condition is being relieved, and $SPX
may try to rally back a bit from here, but with the technicals turning
bearish (break of $SPX support at 1130, break of the uptrend line, put-
call ratio sell signals, breadth sell signals, and $VIX breaking
its downtrend), this is likely to be a bigger decline than just the two
days we've seen so far.
McMillan Analysis Corporation
PO Box 1323
Morristown, NJ 07962-1323
www.OptionStrategist.com
(800)724-1817
