Tuesday, December 13, 2016

Further Signs That The Current Rally Is Mostly Done

The last couple sessions have showed what I call a total put/call ratio sell warning.  I have shown the chart many times, but the 5 period total p/c ratio is below the 1 standard deviation bollinger band.
I added several other concurrent filters to the data, and they basically all suggest a negative skew over the next couple months.  It appears most strong looking out about 2 months.

I also looked at time only in December when the signal occurred.  It was less bearish compared to the total sample.  The skew still went negative at the 1 month mark, but was positive for a couple weeks after the signal.  That would fit our current situation where we have no bearish divergence in daily MACD, and Christmas is yet ahead of us and the seasonality is still positive.

I also looked at the signal in December when the weekly MACD was above 0 versus when it was below 0, meaning the market was recently selling off.  When the signal occurred above 0, as it is currently, it was more bearish, but not many instances were present.

The FOMC meeting announcement will be tomorrow.  I think it possible that markets sell off a bit, but then still end up making more new highs.

In any case from my perspective here, I dont anticipate much further price gains in SPY for the next couple months.  Some of the stats that have showed up on the back tests are compelling for an inverse position being established here.  From the option standpoint there are profitable plays as well on the puts, but my personal assessment of the market position is that it will likely be a couple weeks or so until markets are ready to top or start to roll over.