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The Philadelphia Oil Service Index (OSX) has also broken key support. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.
Chart Courtesy of StockCharts.com
The Amex Oil Index (XOI) is in deep technical trouble in the short term. The index could be headed for the 750 area in a hurry.
In the current market, we recommend a copy of "Successful Energy Sector Investing" (Random House/Prima Venture) . The book predicted many of the current developments in the economy and the energy markets, and provides an excellent set of benchmarks and trading lessons for what could be in store for the future.
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Bears Making Big Bucks In Options
Put/Call ratios are rising. But the stock market looks to be heading lower.
Normally, rising Put/Call ratios are a sign that a market bottom is near. But over the last few weeks, rising Put/Call ratios have been a signal that some smart money types knew something was coming, and bought portfolio insurance. Those individuals or institutions are looking fairly good right now, as their options are in profitable territory.
It’s difficult to predict when things will be back to normal. Although it is important to point out that during bear markets, as in the 2000-2003 beast, rising Put/Call ratios meant very little, and were not very good contrarian indicators.
The CBOE Put/Call ratio checked in at 1.42 on 4-15, another normally bullish reading that is being ignored. This indicator has delivered several readings above 1.0 lately, with no rallies having materialized. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis.
The CBOE P/C ratio for indexes on 4–15 came in at 2.17, another usually bullish reading being ignored. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 17.74 and 21.85 on 4-15. These are bearish readings. When these indexes begin to rise, it is a sign of concern as rising volatility indexes suggest that an acceleration of the prevalent trend is on its way. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.
Newsletter writers are increasingly bearish. But the 13 week moving average is still above 70%. Weekly readings bounced back above the 70% area. Major rallies have traditionally been launched usually when this indicator falls below 40%. Readings above 70% are usually very bearish.
The futures traders polled by Market Vane registered a 64% bullish consensus, not much changed from recent readings. This survey last delivered a sell signal on 2-20, with a reading of 70% bulls on stocks, which preceded a significant market decline.
Our Big Trend Model fell to a reading of 15. This is as oversold a reading as we’ve ever seen. The model fell to 25 on 1-28, correctly predicting a market bounce. Readings near or below 40% often precede market bounces, but may initially be signs of caution when markets have had a rally. Readings above 80% are usually bearish. The Big Trend Model is composed of technical and monetary indicators and updates automatically on a weekly basis.
Our MASI indicator is back to neutral after last week‘s buy signal which was clearly wrong. MAGI is nearing a buy signal. When these two indicators agree, the market usually follows in the direction of the signals. MAGI is based on the weekly data provided by Investor’s Intelligence’s poll of newsletter writers, a group that has been bullish for several years, and stayed bullish, and wrong throughout the bear market. When both indicators agree, there is a high degree of correlation with a significant market move. When these indicators disagree, it is often a sign that the market is about to go nowhere but that volatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarely worth acting on. MAGI is an intermediate term indicator with an excellent predictive record. The best market bottoms occur when both of these indicators are both on buy signals, a telling sign of intense fear on the part of investors. MASI and MAGI are sentimen t indicators that are updated on a weekly basis.
The NYSE insiders were bullish on stocks on 4-1. Short selling by NYSE specialists is still low by historical standards. This indicator is very positive when short selling by the specialists is low as the same time that they are net buyers of stock, which is the current scenario. This is a set of very smart investors, and when they turn positive or negative, it is just a matter of time before the market follows. Spec data is released to the public with a two week lag, so is not useful as a market timing tool, but is excellent background and confirmatory information.
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Chart Courtesy of StockCharts.com
The Amex Biotech Index (BTK) showed some relative strength on 4-15, as it closed above 500. This is positive. The 500 - 510 area is now support. Visit our health and biotech area for more details as new stocks have been added our buy list.
Chart Courtesy of StockCharts.com
The Amex Pharmaceuticals Index (DRG) is also acting better. The index has now closed above 330, a key chart point. This is a positive. For a full description of the ins and outs of investing in biotech and pharmaceutical stocks check out our book "Successful Biotech Investing", available at amazon.com, barnesandnoble.com, and bookstores everywhere.
Chart Courtesy of StockCharts.com
The Philadelphia Semiconductor Index (SOX) looks headed for a test of its recent lows. For trading info on technology stocks visit our Stock of the Day and Technology timing sections.
Chart Courtesy of StockCharts.com
Small stocks are as weak as the rest of the market, and look redy to get weaker. For trading suggestions in the small cap arena visit our S & P trading page featuring our ETF trading model for small caps.
© Copyright 1996-2005, Kollar Market Analytics, Inc., All Rights Reserved.
Market IQ reports may not be redistributed without permission. Disclaimer: The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable.
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