Bullish Action -- for Some

 | Sep 29, 2011 | 7:24 AM EDT  | Comments
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Stock quotes in this article:

XLP

Not much of the action Wednesday can be considered bullish, but there are some observations to make. The first is that the put-call ratio of the CBOE Volatility Index (VIX) was discussed here for the past two days, given that high reading are generally not bullish. Last Friday we saw a reading above 200%, followed by Monday's even higher reading above 300%. As a reminder we hadn't seen a reading above 300% since 2009. On Wednesday, the number was again too high, chiming in at 173%.

Now for some extremes that would be considered bullish: We saw yet another day during which 90% of the volume was on the downside. However, this time it was accompanied by some very high Arms Index (TRIN) readings. The TRIN on the NYSE was 5.49. Let's put that in perspective.

Since August we have seen four readings above 4.0. I've circled those points in time on the S&P 500 chart below. The first of these, the market rallied just a bit the next session, and there was a flat close for the second. The third (indicated by the arrow) -- the only reading above 5.0 -- we saw an 80-point rally on the S&P. The last time, the index enjoyed a 70-point rally.

S&P 500

Now, let's look at the ISE equity call-put ratio, as it was so low Wednesday -- 71% -- that I could only find two other instances that were comparable (circled on the chart below). Both were back in the first quarter of 2008. After the first --on Jan. 17 of that year -- the market got clocked for two more days and then saw a reversal and rally of more than 10% within a week or so.

The second reading coincided with the "Bear Stearns" market low in March. As a reminder, stocks rallied hard for a day and came back down over the course of the next week, but it was a low in the market for several weeks.

ISE Call-Put RatioNow we need to check in on the oscillator, which will be back to another minor oversold reading Friday or Monday. On Friday, as well, the 30-day moving average of the advance-decline line will also return toward a minor oversold reading. They are considered minor because the string of negative numbers we are dropping is short, not long.

Overbought/Oversold Oscillator -- NYSE

It would not surprise me if, based on these indicators, we saw some more downside in the next day or two, and then rallied again next week.

On a different note, I want to finish by mentioning the perception that owning dividend-paying stocks, such as the consumer staples, are a great place to hide in this market. Look at the chart of Consumer Staples Select Sector SPDR (XLP) below -- a break of $29 would be negative for this group. There are no hidey holes in bear markets.

Staples Select Sector SPDR (XLP) -- Daily

I'd like to take this time to wish all my Jewish readers a happy, healthy and prosperous New Year!


 

Overbought/Oversold Oscillator -- Nasdaq

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