Stock Market Recap And Options Review: March 25 Expiry

The March options expiration ended with all three major stock market ETFs ($SPY, $QQQ and $IWM) finishing higher. $SPY closed well over its 200 SMA and is nearing potential resistance levels. While $QQQ also moved higher lethargically, $IWM consolidated well and broke out of a bull flag higher.

$TLT showed some signs of life and is trying to bounce with a potential chance of a break higher. $CL_F (Crude Oil) moved higher while $GC_F (Gold) bounced after moving lower. $DX_F (U.S. Dollar) continues its downward move and took another pounding last week.

Market breadth expansion was the norm with some intraday consolidation. With all that said, there are no sell signals yet to go short.

From a breadth standpoint, here are a few indicators that may provide clues for the upcoming week:

SECTOR PERFORMANCE:

From a sector standpoint, 6 out of 9 stock market sectors are overbought with 2 approaching 70 zone. Some consolidation next week with potential rotation into $XLV and/or $IBB is possible. $XLE and $XLF still have some room before being overbought.

stock market sectors chart overbought oversold march 21

$NYMO (McClellan Oscillator):

$NYMO moved lower, consolidated during the week and now it is back at overbought zone. While it can go higher, consolidation here or a pullback towards zero line will be ideal.

nymo mcclellan oscillator overbought march 21

$CPCE (CBOE Options Equity Put/Call Ratio):

$CPCE is now at 0.550, back towards the lower end where bounces have occurred. This means that with stock market indices near or at potential resistance zones, market participants may be rushing to buy protection, inducing some fear near term. This is showing some warning signs plus complacency near term.

equity put call index complacent stock market march 21

$VIX:$VXV:

$VXV is the 3 month volatility index. The relationship between $VXV and $VIX (30 day volatility) or the ratio between them if > 1.00 often spells trouble for equities. This volatility ratio continues to ease off lower but is at or nearing a point where this can bounce. It finished the week at 0.782. This is also showing some warning signs plus complacency near term. Another one to watch next week if there are short term pullbacks and some bounce in $VIX.

vix vxv volatility ratio stock market march 21

$SPY – Daily/Weekly and Open Interest:

On a Daily timeframe, $SPY began the week above the 200 SMA but started pulling back a bit towards the 200 SMA. The gap from early January was still unfilled. This is a normal reaction to any break higher to retest either the breakout zone or any moving average before higher. On Wednesday, it continued higher didn’t look back for rest of the week, even with $SPY going ex-dividend. On Friday, it printed a DOJI and that means indecision. There is a potential for a pullback or consolidation if the DOJI is confirmed lower at the start of the week.

Price is clearly above all moving averages and moving away from the 200 SMA. 8 SMA and 21 SMA have started to rise nice as well while 50 SMA is trying to flatten out a tad. From a momentum indicator standpoint, RSI is rising but near 70 and hence consolidation here is ideal first before the next move higher. MACD too is rising but getting a tad extended for the shorter timeframe. Here too consolidation is ideal. Slow STO though is embedded and is in the overbought zone. A pullback / consolidation here too may be on cards.

sp 500 daily stock market chart march 21

On the Weekly timeframe, $SPY has printed another bullish candle for the 5th successive week. Price on this timeframe is over its declining 50 SMA. The RSI on this timeframe is rising and in the bullish zone while MACD has made a bullish cross and rising too. It is still below median but constructive so far. Overall, with some consolidation, look for higher prices on $SPY towards 208 which happens to be the measured move of this move. (See $SPX chart for measured move).

sp 500 etf spy weekly chart stock market march 21

From an Open Interest standpoint, here are the potential scenarios:

Highest Calls: 206

Highest Puts: 200

  1. If $SPY starts the week lower, below 205, look for the 1st support around 203. If that doesn’t hold the next support zone is 201-200 where there are quite a few puts. Additional support zones are available if 200 is lost at 199, 198, 197, 195 and 194 and these are worst case scenarios.
  2. If $SPY moves over 205 and towards the 206 price level, with a lot of calls there, look for resistance. A pullback from there towards 203 is possible and scenarios outlined above hold good. But if 203 does hold and $SPY does move over 205 and 206, there is always a chance for it to move towards 207 and/or 208. I will not rule this higher move out yet with the bullish posture of the momentum indicators and price.

Note: Since these are weekly options, there can be quick changes to them during the course of the week. Pay attention to those changes as the above mentioned scenarios can change a bit depending on where the change is.

spy open interest calls puts weekly march 25

 

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S&P 500 Weekly Update: Stocks Fight To Hold Gains

Stocks rallied for the third consecutive week last week. Can the stock market make it 4 weeks in a row this week?

The rally last week was led mainly by crude oil, and small caps stocks, with the financials sector not far off. This undercurrent of support propelled the S&P 500 higher into the beginning of a thick price resistance zone.

Intraday levels of the McClellan Oscillator $NYMO reached levels not seen since 2008 last week and the indicator has remained overbought for the past 2 weeks. I certainly agree some of the market breadth indicators are overbought but that potentially has been the fuel for higher prices and what may be on the horizon for the next few weeks.

There has been quite a bit of consolidation and this has kept the Relative Strength Index (RSI) from getting too far ahead of itself. Overall the active has been quite constructive. Higher prices may be up next as many investors are still skeptical of the rally and continue to look for short opportunities with each move higher… and price keeps going higher.

That said, the longer term picture still shows lower highs which indicates that the market is still in a downtrend. The shorter-term bullish posture is threatening that, but that remains to be seen. Various sectors have shown strength recently, but broad leadership is still lacking. Lots of laggards bouncing sharply.

Below is a chart of the S&P 500 Index through last weeks close. You can see that RSI is in the bullish zone and indicates that the market is likely to consolidate gains here. The MACD is still rising and in good shape thus far. Stocks closed just above the 100 day simple moving average. While price may run to its declining 200 day SMA before a pullback, the ideal scenario will be to consolidate gains, then make a run higher towards the 200 day SMA. Momentum is still in the bulls favor but the bears are watching for any weakness.

S&P 500 Index (through March 4)

spx sp 500 index chart analysis stock market march 9

Market Breadth Indicators:

From a market breadth standpoint, there are a few charts that we should take a look at.

Sector Performance Review:

Looking across then core S&P stock market sectors, it’s clear most are acting bullish zone and rising near-term. Even laggards like the Financials (XLF) and Energy (XLE) participated in last week’s stock market rally. Healthcare sector (XLV) is a notable laggard that hasn’t participated int he broad 3 week rally. Overall, the action is constructive.

The Relative Rotation Graph (RRG) chart highlights the leaders and laggards across 9 key sectors.

relative rotation graph rrg sector performance march

CBOE Equity Put/Call Ratio:

The Put/Call ratio has dipped below the Jan and Feb lows. Is this an indication of some sort of complacency? It’s possible. With many sectors and indices rallying so far so fast, a pop higher could be on the horizon. Watch the Volatility Index (VIX) – if it stays below 20, then the Put-Call ratio may remain low(er).

equity put call ratio stock market indicator complacency week of march 11

NYMO (McClellan Oscillator): 

The intraday reading on on the McClellan Oscillator on Friday reached its highest reading since 2008 and settled just a tad below 2009 levels. Needless to say, it is overbought and stocks can use some consolidation.

nymo mcclellan oscillator overbought march 4 chart

VIX:VXV Volatility Ratio

VXV is the 3 month volatility index. When the ratio between the VIX and VXV is > 1.00 it often spells trouble for stocks. This ratio continues to ease up. This is another indicator to watch here to see if the market consolidation will remain orderly or not.

vix vxv volatility ratio indicator chart week of march 11

Thanks for reading and good luck this week.

 

Twitter: @sssvenky

The author has a position in S&P 500 related securities. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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