A Contrary Indicator That’s Working

Because the August highs, there have been a number of tales concerning giant put purchases. On September 23^rd, 33 million puts were traded, probably the most since data began in 1992. On the identical day, 26 million calls had been traded however the CBOE Complete Put/Name ratio hit 1.36 the best ratio since April. That is what is named a opposite indicator as excessive put/name ratios usually coincide with short-term market bottoms as too many merchants are bearish.

It has not been a very good yr for opposite indicators as some bullish sentiment numbers reached thirty-year lows earlier within the yr. There are a number of cases through the bull market the place the numbers weren’t as excessive as they’ve been this yr however the low bullish ranges coincided with key turning factors within the inventory market.

The highly effective rally early final week possible punished the heavy put consumers because the S&P 500 was up 5.65% in simply two days. The marginally decrease shut Wednesday set the stage for heavy promoting on the finish of the week. This put the S&P 500 down 23.64% from the report closing excessive.

Despite the fact that the most important averages had been increased for the week the market tone heading into the lengthy weekend was not optimistic. Although the rally early final week was spectacular as all 100 Nasdaq 100 shares had been increased on Tuesday it nonetheless stopped precisely the place one would anticipate primarily based on technical evaluation.

The Spyder Belief (SPY
PY

SPY
) had a excessive final Tuesday at $379.46 which was simply above the declining 20 day EMA (in crimson) of $378.63. It additionally closed above the month-to-month pivot at $374.76 however beneath the brand new QPivot at $381.98. In Wednesday’s session, SPY closed decrease at $373.20

These are the basic indicators of a rally in a downtrend (level a) and many of the different markets, just like the QQQ
QQQ
, exhibited the identical habits. In my 4^th Quarter assessment of the over 120 ETFs a lot of them additionally simply rallied again to their 20 day EMAs and their new quarterly pivots earlier than they turned decrease. Lower than 10% closed the week above their QPivots.

The S&P 500 Advance/Decline line peaked on August 16^th and began a brand new downtrend on August 29^th because it made decrease lows at level c. The A/D line dropped to new correction lows in September because it violated help at line d. It’s nicely beneath its declining EMA and the important thing downtrend, line b. A transfer above this resistance is required to sign a change in pattern.

It was not stunning that SPY made decrease lows in Monday’s buying and selling at $357.67 however then rallied in late buying and selling however nonetheless closed decrease for the day at $360.02. The SPY low on September 30^th was $357.04 with the month-to-month S1 help a lot decrease at $339.46.

The weekly chart of the Invesco QQQ Belief (QQQ) reveals the rally failure doji because it closed final week close to the place it opened and up simply 0.70%, half the acquire of the SPY. The weekly Nasdaq 100 A/D line dropped beneath the bullish divergence help at line c, simply three weeks in the past. This was a really damaging improvement.

One among my favourite short-term buying and selling instruments, the % of QQQ shares above their 10-day MA dropped to six% on the finish of September after which rallied to over 90% because the rally failed. The amount was a bit decrease final week which can be a optimistic if quantity doesn’t broaden with extra promoting this week.

In Monday’s session, the QQQ was down 1% with a low of $263.64 which was beneath the September 30^th low of $267.10. The 61.8% Fibonacci help from the Covid low stands at $257.73.

The relative performance (RS), which measures QQQ versus the S&P 500, made decrease lows as QQQ is performing weaker. The every day OBV additionally made a brand new low on Monday so there aren’t any indicators but of a backside.

On a short-term foundation, an oversold rally is probably going within the subsequent week or so however as we realized final week. It can take time and continued power earlier than the correction is over. For my views on the opposite market mentioned in August please observe these hyperlinks: What Happened To August’s Four Markets To Watch? and Do Bitcoin And Gold Still Look Vulnerable?