If it wasn't for the afternoon selloff in biotechs (again), there really would have been very little going on in the market today. I suppose it continues to be the sort of situation where everyone is waiting for Fed Chair Janet Yellen to speak at Jackson Hole on Friday.
Statistically, there were some positive points today, mainly breadth was positive and the put/call ratio showed a marked increase in bearishness, chiming in at 115%. That is a change from yesterday. The problem, however, is that it seems the puts were heavily skewed toward the VIX, as that put/call ratio was 102%.
As a reminder, a high put/call ratio means too many puts are being bought relative to calls. It's a bet that the underlying instrument is headed down. In this case, a high VIX put/call ratio is a bet on a lower VIX and generally a lower VIX means a higher stock market. As a contrarian, we'd say when the VIX put/call ratio goes over 100%, the market should not accommodate these folks, and therefore the VIX should rise and the market should go down.
That being said, Nasdaq toyed with 5200 but did not break it. And the S&P remains trapped in that range over last week's low of 2165. Perhaps Yellen will say something to change that.
I noted above that the statistics had some pluses but the flip side is that the indicators that make up the statistics do not look so positive. We continue to see the McClellan Summation Index heading down. A big rally can change that; it will take a net differential of +1600 advancers minus decliners to get it to stop going down.
Nasdaq, which is just now rolling over, still requires the same number as it did yesterday: +900 million shares (up volume minus down volume) is what is needed to halt that rollover.
Since I will be on vacation for the next week, and in that week we'll see the Jackson Hole speech and the employment number, I thought I would note a few charts of interest. Let's begin with the VIX. Longtime readers know that when the VIX gets jumpy, I consider the market oversold -- or in enough panic that a rebound is usually on the table. Here you see the VIX resistance line at 14. To me, the VIX looks jumpy when it looks like it has broken out. Notice how it did so in June, into the Brexit low. A breakout would have a similar look to me.
If Yellen is hawkish, folks will look to the banks. The S&P Regional Banking ETF (KRE) would need to clear $42 to make this look like a breakout. And by clear it, I don't mean $42.15; I mean something you can see with your own two eyes.
And then there is the iShares 20+ Year Treasury Bond ETF (TLT), which remains trapped in this tight range. Over $141 and it's clear Yellen has signaled no hike. Under $137-$138 and she has. If TLT cannot break out, my guess is KRE will enjoy a false breakout at best (i.e., rally to $143 and then retreat immediately).
Down below in the Indicator section, I have several charts of the various put/call ratio moving average lines. None is currently bullish. They all speak of complacency. Please have a look.
My guess is the market still has some volatility ahead of it, especially with that VIX put/call ratio is so high when the VIX is on the verge of potentially breaking out.
The next Letter will be on Labor Day, Sept. 5.
I am not a big fan of buying much with expected volatility, but the chart of Ctrip (CTRP:Nasdaq) looks interesting as long as it stays over this line, since it could attempt the old highs.
If you're looking at shorting the S&P, the breakdown would come under 2165 (black line) and the next support would be near 2150 (red line). Keep in mind the index has not given us much for nearly seven weeks.
As noted above, all the various moving averages of the various put/call ratios are heading upward. That means none of them is currently calling for a rally.
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I was asked to follow up on U.S. Oil Fund (USO), an ETF to be long oil, which I have liked for a while. Last weekend, I noted that we desperately needed a pullback and we have gotten one. I think this $10.50 area should hold this first trip down and rally (so far, it has). I have my doubts as to whether this will make a new high, but rarely do we see a peak without another attempt at a rally. What would turn me cautious on this chart would be if it fails to get over $11.25 and then retreats under $10.75. Otherwise, it gets the benefit of the doubt that this pullback leads to another rally.
The question: Is it possible that the U.S. dollar has bottomed? It is very possible. I thought we'd see a short-term rally off this line (as we have), but it is also my view that once this rally is done we'd see the U.S. Dollar Index Bullish Fund ETF (UUP) head back down again, breaking the uptrend line and causing some dollar panic. So for now, I would say I am leaning more positive on the buck but I'm uncertain how we get there; as always, I like a bit of panic.
I have written about the airlines over the last few weeks and was asked about JetBlue (JBLU:Nasdaq). With all its exposure to the Caribbean and Zika front and center, this chart looks much worse than the others. A push down to that line would be a retest of the line and a retest of the Brexit low. And it would fulfill a downside target. So near $15, JBLU probably becomes attractive.