When looking for directional market guidance we often use certain indicators to flash evidence, often times quite overwhelming and significant. However, when the indicators are mixed (some bullish, some bearish) then we have to pause and wait for the evidence to change. The markets are perpetual game, never ending – yet the signals are always changing, and we must ultimately be flexible and exercise patience, sometimes observing and not acting.
Lately, we have seen mixed signal. The McClellan Oscillators have quietly shifted to a sharp oversold level, primed for a bounce. We often see the market bounce sharply when this is washed out. Events next week may see this indicator move up sharply as the uncertainty is resolved. The VIX indicator has been rising somewhat of late but not strongly, it makes sense with so many unknowns about to be resolved. This tells us more likely we’ll have some panic selling and then buying – probably opening up some opportunity.
Individual stocks have not been inspiring the bullish spirit. New highs have contracted significantly, while money flow into stocks has slowed down. This tells us institutional sponsorship is fading at the moment – similar to just before the brexit occurred – but then players piled into markets when sentiment was steeply bearish.
Put/calls have been sending a neutral sign however. We have mostly seen put buying rise sharply during market drops while call buying when the market is moving upward. The ratio has often been a good leading indicator but more recently has been a coincident indicator with the current market conditions. They tell us good information for the current day but are not showing patterns or trends.
Finally, price action, the key to it all has not broken yet – the price chart is the most important indicator. All others can fail to confirm with the price chart and it won’t matter We see price at the lower end of a wide trading range, and until that breaks we won’t have a definitive trend.
