Sunday, March 27, 2016

When Bad Is Good

Today's update will be very brief due to the holiday.  

As promised I wanted to show a comparison to this weeks sentiment indicators compared to the last rally top on Nov 3, 2015.

Comparing the Nov 3 rally top to then week ending Mar 18 was identical in overall score with 0 indicators up, 9 down and 7 neutral for a rating of -7.  However, many of the negatives in Nov were more extreme, more important is that after only a 2% decline last week, the score dropped to only a -5.  Looking at the put/call ratios shows very low bearishness for both ETF and SPX P/C, while the Equity P/C reached a high enough level to become bullish, as well as turn the overall CPC to a neutral.  Changes in the put/call measure support an end of quarter rally next week mostly in the beaten down stocks (Equity P/C) with less support for the large caps (ETF and SPX P/C).

As for the title "When Bad Is Good",  I am referring to the extreme overbought condition of some of the indicators that can actually be a sign of strength - at least short term.  Similar to the Zweig breadth thrust off the Aug 2015 lows that convinced many that a bull market rally to ATH was around the corner, we now have extreme readings in the NYMO and the cumulative NYSI that did not occur in either the 2000-02 or the 2008-09 bear markets.  A strong rally in the DJIA late 2000 into 2001 could be view as similar but weaker.

Another indicator the VXV/VIX, whose 20 day SMA normally oscillates between 1.00 and 1.20, reached a level of 1.22 last week.  This last occurred at the Dec  2014 and Mar 2015 tops on the markets way to ATHs last May.  The extreme overbought conditions may keep the market afloat for another two or three months as in 2015, but there is no doubt that Cinderella's coach will turn into a pumpkin sooner or later.

No comments:

Post a Comment