Wednesday, October 24th, 2007
Stock Market
$SPX fell through several support levels during last week's decline,
most of them coming on the 19th. The first level was 1540-1550, and
then 1520-1530. Both were washed out during that decline, leaving
the important 1490 level as the next support.
Even so, the most bullish indicator that we see right now is the
chart of $SPX itself. We have previously mentioned that the 1490
level is important. Last summer, it was support, until broken in
August. Then it became resistance until the new rally was launched in
September. Now it remains as support again. Three times this week,
$SPX has fallen to 1490 intraday (once on Monday and twice today),
only to rally strongly each time. That is the definition of support. So,
as long as it holds, the $SPX chart remains bullish.
The equity-only put-call ratios have turned negative, rolling over
to sell signals. However, if you'll notice the previous sell signals, they
were actually double sell signals before the market caved in. So
something similar could be lining up this time as well.
Market breadth (advances minus declines) has been extremely
poor since the averages topped out on October 9th. This culminated in
a full-blown oversold reading on October 19th. The improvement in breadth
early this week has improved things somewhat. While we use breadth mostly as
a confirming indicator rather than a leading one, this is still encouraging.
Both $VIX and $VXO rose rather sharply last week and into the
early part of this week. As a result, $VIX has the possibility of turning
bearish -- a classification we would bestow upon it only if it were truly
in an uptrend. If one uses the 20-day moving average of $VIX as a
guide, it is looking bearish, for it has begun to curl upwards (see
Figure 4). However, things can change quickly with $VIX, and if it
should close below 19, then the bullish case would once again be in
force. In fact, if it did that (close below 19, that is), there would be
something of a spike peak on the $VIX chart above 24, from
Monday's and Wednesday's market action -- more bullish fodder.
Despite the deterioration in the indicators, we remain bullish as
long as $SPX continues to close above 1490.
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McMillan Analysis Corporation
PO Box 1323
Morristown, NJ
Info@OptionStrategist.com
www.OptionStrategist.com
(800)724-1817
