Weekly Market Commentary 11.15.13

$SPX broke out to new highs, and that is bullish, but severe overbought conditions still exist.

$SPX has support at 1750-1770, the range it traded in for a couple of weeks.  Also, there is further support at 1730.

Equity-only put-call ratios are on buy signals, but are in extremely overbought territory.

Breadth has been relatively weak for some time now. For example, $SPX is making new highs, but cumulative breadth is not. Thus, a negative divergence has arisen.

Volatility indices ($VIX and $VXO) continue to hover at very low levels.  Thus, they are overbought in the same sense that the put- call ratios are overbought.  However, stocks can continue to rise as long as $VIX remains low.

In summary, the overbought conditions are adding up.  Despite the new highs in $SPX, we continue to feel that a correction — sharp, but short-lived — could take place soon.

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Larry McMillan


Professional trader Lawrence G. McMillan is perhaps best known as the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 300,000 copies. An active trader of his own account, he also manages option-oriented accounts for certain individuals. In a research…


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