The stock market, as measured by the S&P 500 Index SPX, has bounced off support, but it remains to be seen if this just an oversold rally or if it is the beginning of a new bullish trend. The support came in two forms: the 4200 level and the rising 200-day Moving Average of SPX. Oversold rallies typically advance to and slightly above the declining 20-day MA. That is exactly what has happened so far.
Equity-only put-call ratios have improved a little, but even on this rally there have been periods of heavy put buying. The standard equity-only put-call ratio has rolled over to a buy signal, and that is confirmed by the computer analysis programs that we use to analyze these charts; it is marked with a green “B” on the standard chart. However, the weighted ratio is still in doubt.
The volatility-based indicators are somewhat bullish, although there are some important days ahead. The “spike peak” buy signal occurred on October 6th, and that is still in place. It will last for 22 trading days, unless stopped out by a VIX close above its recent high at 20.88. At the current time, there is no trend of VIX signal, but as one can see from the accompanying VIX chart, the 20-day Moving Average is advancing strongly on the declining 200-day Moving Average .
Buy 1 SPY SPY Nov at-the-money call and Sell 1 SPY Nov call with a striking price 18 points higher. We are holding without a stop initially. Roll the entire spread up if the long side becomes at least eight points in-the-money.There is a new weighted put-call ratio buy signal for ES ES, -7.60%, so we are going to act on it. Buy 3 ES Nov 60 calls in line with the market.We will hold this position as long as the weighted put-call ratio chart for ES remains on a buy signal.