JOIN ME MARCH 31ST IN LOS ANGELES FOR MY ALL-DAY INTENSIVE OPTION SEMINAR.
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This week, the lows were successfully retested (so far). It is possible that
the worst is over for this decline.
As for the $SPX chart, there is clear support and resistance. The
support is the 1365-1375 area mentioned above. If there is another
retest, we would expect that area to hold -- and perhaps to see some of the
other indicators, such as put-call ratios, turn bullish by then as well. Of
course, if that support were to fail, then a whole new round of bottom-
forming would have to take place. As for the upside, there is resistance
on the $SPX chart at 1410. A breakout over that area would be quite
bullish. In the past, there have been some bottoms that set up with about
the same amount of work as we've seen in this one (July, 1996, for
example). As long as $SPX remains within those two levels, we'll
retain a neutral opinion regarding the $SPX chart.
The equity-only put-call ratios continue to race higher, as put
volume has been heavy for nearly three weeks -- even on days when the
market is up. As a result, both equity-only ratios have correctly
remained on sell signals. They are now becoming quite oversold, as they
have exceeded the highs set at last summer's bottoms. However, an
oversold market can continue to decline. These ratios won't turn bullish
until they roll over and begin to trend downward.
Market breadth has been all over the map, and at extreme levels
from day to day. When the market has suffered big declines in price,
declining issues swamped advancing issues. In fact, February 27th and
March 13th were two of the biggest ratios of declines over advances in
history. However, when the market rallies, advances dwarf declines.
Finally, the volatility indices have been quite interesting. During
Wednesday's drop to new lows, $VIX rose to a new high -- above 21. It
has since fallen back quite a bit. A spike peak in $VIX is a buy signal.
In summary, we think there is a good chance that the lows are in,
although they may be retested once more. Any sustainable rally will
need to have buy signals from the equity-only put-call ratios -- something
that has not been forthcoming so far. For now, though, we remain
somewhat neutral on the market until more pieces of the puzzle fall into
place.
