Click on above images to enlarge
In today's market we had our 4th day of sideways trading on the S&P that amounted to very little change in the overall situation since my blog post last night. The most important thing to mention is a divergence that is occurring between the adv/dec and the 30min bars of the S&P chart. Looking at the lower chart cluster, row 2 chart 3, we see that since Sept 2, the S&P has been climbing steeply then leveling off sideways for the past 4 days but when you look at the adv/dec chart directly below it (row 3 chart 3) we see that the adv/dec ratio on the vast expanse of stocks has been basically in a downhill channel since 9/2. This is a fairly strong divergence and might very well be causing the sideways holding pattern we've been in the past four days. The mega caps have been exhausted by being driven up relentlessly while the vast expanse of the other stocks have been having more and more of their numbers starting to sell off during the same period producing the downhill channel in the adv/dec chart. Since the S&P 30min chart shows that it's not going to be able to break out of the upper blue channel line with a bunch of exhausted megacaps on their own, it looks as though we are having to wait for the adv/dec ratio on the full breadth of stocks to get deep down into the green buy area where big opening gaps spring up from, especially when we can't move higher any other way. While the adv/dec just barely touched down into the first sell area line, most traders would feel that it would need to go deeper to get more springboard power under the vast expanse of stocks so that they can help push the S&P and megacaps above the blue upper channel line. Conventional wisdom says that the adv/dec needs to go down closer to the -3500 to -4000 area to get some true lift power but if the shorters are thinking the same and not taking any of their short positions off until we do get farther down in the adv/dec, the bailout team might decide to get ahead of the pivot point again and try to bounce the market up tomorrow when the shorters are not covering their positions yet figuring that they don't have to until the adv/dec get does get into that -3500 to -4000 area. This would be another short squeeze opportunity for the bailout team if they think they have the ability to break us out and follow through.
Another notable item: S&P Put/Call ratio dropped down to .54 which means that the great majority of traders and investors believe that we are getting ready to break out of the blue line channel to the up side and are positioning themselves for that. This is a very bullish number. There is one wild card tomorrow in that it is quadruple witching expiration day. Contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This often produces strange and illogical movement in the indexes.
Another notable item: S&P Put/Call ratio dropped down to .54 which means that the great majority of traders and investors believe that we are getting ready to break out of the blue line channel to the up side and are positioning themselves for that. This is a very bullish number. There is one wild card tomorrow in that it is quadruple witching expiration day. Contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. This often produces strange and illogical movement in the indexes.
Alan
