Weekly Market Commentary 2.7.14

The stock market finally halted its straight-down tailspin. A strong rally generated some oversold buy signals which could carry the market back towards its declining 20-day moving average.

The $SPX chart is negative, in a pattern of lower highs and lower lows, and that is what makes it bearish.

lm 2 7 spx

Equity-only put-call ratios remains negative. Thursday’s rally did not impede their march upward, and when put-call ratios are rising, that is bearish for stocks.

Market breadth indicators have diverged, but if Friday’s rally
holds up throughout the day, they will both be bullish.

Volatility indices ($VIX, $VXO, and $VXST) spiked to new relative highs early in the week, but now they have fallen sharply, which creates a buy signal.  This is quite important.

LM 2 7 vix

In summary, the severity of the selloff in stocks created some severe oversold conditions.  Those have now blossomed into buy signals, but there is still a much larger intermediate-term bearishness in place.  The buy signals may generate a rally back to and through the 20-day moving average.  But for anything more than that, the intermediate-term sell signals have to be reversed.  LM