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I was going to do a longer post today but I’ve decided to split the post in two, covering the longer term in this post and looking shorter term in a follow up post to be published tomorrow.
In my last post I was looking, among other things, at the SPX monthly chart and noting that if there was a monthly close significantly above the monthly upper band (currently 3570 area) at the end of November, then that would be the first time in the last twenty five years that had happened less than six months after a recent strong punch close above the monthly upper band (in August). The monthly close for November is at the close on Monday, so that is now only just over a trading day away in regular trading hours. Could it happen? Yes, and this has certainly been a very strange year both in the world and on the markets so we’ll see.
From last evening’s post regarding the measurement of complacency or fear in the markets by using the Equity Put/Call Ratio, I stumbled upon a way of timing when those transitions are underway.
It all started as I was comparing the large negative divergence in the SPX:VIX ratio to the large one I recall from 2007. As I began marking it up, a light bulb went off as I realized that ALL of the major Equity Put/Call reversals had a concurrent divergence on the SPX:VIX chart. I will plot them above each other for easier comparison.
While doing my end of week market reviews over the weekend, I noticed that the close Friday, Nov 13th had extremely strong Moving Average Breadth, that is, high percentages of stocks above 20, 50, and 200 moving averages. This got me very curious so I went back to 1999 (as far back as %200MA numbers go) to compare similar market conditions.
I set the criteria at an extreme level of >85% intentionally to ferret out how common this was. Truth is, it is a very rare condition for all three to be true. I felt the study would be more helpful if I expanded my markups to slightly relaxed conditions. Met criteria are in blue, expanded criteria are in gray.