Last week here I discussed cracks in the market that were keeping me bearish, but with an open mind due to the improvements in breadth. In the end, the market kept flat and whether it continues to be pinned till earnings get underway, or the the elections, or forever, at the current moment it’s hard to make any meaning of SPX with it closing at about the same level on a daily, weekly, and monthly basis.
Since I don’t cover individual stocks here there isn’t all that much I can say about whether I’m bearish or bullish. With price at the exact same level everyday I have to remain neutral, but I will say that my neutral has a bearish undertone given the evidence I present below.
Breadth: Last week I discussed the improvements in overall breadth, which continued to improve throughout the week. However, by the close on Friday they are once again beginning to weaken.
SPX at 20-day highs: This has yet to break and hold above 25%. This is one of the more sensitive measures so one large rally can change that, but for now its not very supportive of the bullish case.
SPX stocks above their 20-day MA: Last week this got right to the level it has failed since August. Last week was no different as it failed to make a higher high and once again looks to be rolling over. It still is better than mid September and could base sideways before breaking 65%, but for now that’s not the case.
SPX stocks at 52-week highs: This is not the kind reading where market rally’s will have sustainability. 52-week highs have been making lower highs on each subsequent bounce off oversold levels. With that said, it is once again approaching oversold levels.
QQQ stocks above their 20-day MA: Thus far the QQQ’s are the only one of the major indices that has yet to show weakness on the surface (more on that below). Yet, underneath the surface the improvement made last week is once again looking uninspiring.
QQQ stocks at 52-week highs: Unless this begins to improve it’s only a matter of time that the QQQ’s begin to show more weakness in price.
Bearish MACD crosses: I mentioned a couple weeks ago that the SPX, NYSE and DOW all had weekly bearish MACD crosses. Thus far that is still the case and as of Friday’s close the IWM looks to be threatening the same. The QQQ’s thus far are the last man standing.
Reminder: Below is a replica of a section from last weeks post with last week changed to the last two:
After the Fed: This chart was posted about a week ago from Urban Carmel. He wrote: “SPX up >1% on FOMC. Here are the last 10 instances and retracement percent from the close over next few wks.” As you can see below, the retracement doesn’t always start immediately, but the lowest retracement is 1.8% (and that was the rarity). The lowest we went the last two weeks was only 1% from the Fed day close. Thus, either this will end up being the lowest retracement after a >1% Fed day or there is still lower to go.
SPY -W: 4 for 4 now in terms of pining in between highest calls and puts.* Next Wednesdays expiration is highly unusual to see (on a non monthly or non quarterly expiration) because there is no best pin and both high calls and puts are already in the money. The highest call strike is right where SPY closed Friday, with the second highest comfortably in the money at the 208 strike. The highest puts are also in the money at 217. There is no way to know what’s behind this (it could be part of some kind of combo or spread etc), but my assumption is that one or all of those large strikes will be closed before expiration on Wednesday. I will update changes during the week via TWTR.
SPY-F: Although I haven’t been tracking how much SPY pins for the years I have followed expiration, I decided I would begin now. So starting last week, the 214 puts held price like a champ and we are 1 for 1 on pinning.* For this coming Friday expiration, the 212 puts stick out like a sore thumb. That is obviously a very big level of technical support that if breached will likely lead to significant selling. Of note, when one strike is dominating in such a manner, it typically was done by one fund and not retail traders and/or a bunch of funds. Thus, this was likely deliberate. I have no idea if they were sold to open, bought to open, part of a strategy or a hedge, but they were likely done around the same time and thus have higher odds of disappearing before Fridays expiration (higher odds doesn’t mean will for sure). Currently SPY has free reign to the upside on this open interest.
In sum, currently there is still more evidence suggesting that there is more risk than reward in the overall market. With that said, it’s hard to take any one side with a close at essentially the same level every day. Until that changes, it’s probably best to stick to individual stocks or practice patience.
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*Last weeks close with the open interest chart.