Stock market

Stock-market bears have a narrow window to capitalize on any S&P 500 sell signals – MarketWatch

Summary

The S&P 500 index
SPX,
+0.22%
continues to plow ahead, trading at or near all-time highs. The NASDAQ-100
NDX,
+0.92%

QQQ,
+0.89%
is keeping pace with it pretty well. Other major indexes have started to lag behind, though – especially the Russell 2000
RUT,
-0.39%

IWM,
-0.26%.

But what’s more concerning is that we are now seeing confirmed sell signals from breadt…….

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The S&P 500 index
SPX,
+0.22%
continues to plow ahead, trading at or near all-time highs. The NASDAQ-100
NDX,
+0.92%

QQQ,
+0.89%
is keeping pace with it pretty well. Other major indexes have started to lag behind, though – especially the Russell 2000
RUT,
-0.39%

IWM,
-0.26%.

But what’s more concerning is that we are now seeing confirmed sell signals from breadth and from equity-only put-call ratios. More about that in a minute.

SPX has support at last week’s lows, at 4630. Below there, support also exists at the previous highs, 4525-4550. A close below 4630 would not only be a violation of support, but it would also confirm a McMillan Volatility Band (MVB) sell signal.

Right now, a “classic” modified Bollinger Band (mBB) sell signal is in effect, but we require further confirmation for the MVB sell signal. That “classic” sell signal would be stopped out by an SPX close above the +4σ Band, which would occur today on a close above 4730. That “stop out” was more realistic a couple of days ago, when it was lower, but that did not occur.


Lawrence McMillan

Also, realized volatility has fallen dramatically, and the S&P’s 20-day historical volatility (HV20) is down to 7%. That is quite low. In a broad sense, it indicates that the market is “overbought” and is wound tightly so that it might explode. An HV20 sell signal would occur if it rises to 11% or higher. Again, that does not seem imminent.

In something of a surprise, the equity-only put-call ratios have both rolled over to sell signals as of the close of trading on Nov. 17. On the accompanying charts, I have marked these with a “S?” to indicate that it is computer analysis making this call, and it is not necessarily obvious to the naked eye.

Sell signals occur when the ratios bottom out (make a local minimum) and begin to rise. The computer analysis – which knows, among other things, what is coming off the 21-day moving average – is “convinced” that the rise has begun.


Lawrence McMillan


Lawrence McMillan

Breadth has deteriorated over the past few days as well. As a result, both of our breadth oscillators are on sell signals, and are dropping rapidly.

This is the shortest-term of our indicators. These signals can reverse quickly, but the last breadth oscillator buy signals were in place for quite a long time (from …….

Source: https://www.marketwatch.com/story/stock-market-bears-have-a-narrow-window-to-capitalize-on-any-s-p-500-sell-signals-01637250566